The huge debt hanging over Murray Goulburn sealed its fate.
MG’s annual general meeting heard on Friday it had looked at all options for accessing capital to meet its debt commitments and the sale was the only option available to it.
The meeting was told MG faced $170 million of “maturing debt facilities” in 2018 and US$89 million of United States Private Placement notes in 2019.
The company’s chief executive officer Ari Mervis said that part of the strategic review undertaken since June was to look at MG’s corporate structure and strategy “specifically on MG’s unit trust and profit-sharing mechanism”, as well as access to capital from different sources.
“The review confirmed that in the absence of sufficient capital to buy back the units, there was no viable alternative and that the profit sharing mechanism and unit structure would endure and remain a feature of MG’s future capital structure,” he said.
“Equally, given the reduced milk intake and requirements to support milk price through debt funding as well as maturing debt facilities of $170 million in 2018 and US$89 million of United States Private Placement notes in 2019, new sources of capital would be required to ensure the ongoing sustainability and viability of MG.”
The company had received a number of unsolicited proposals ranging from discrete asset sales, to equity injections to whole of business transactions.
“As it was now apparent that existing sources of capital were limited and an external source of capital was required, the board elected to narrow the focus of the strategic review and to consider and accelerate engagement with interested parties,” he said.
This ultimately led to the decision to sell to Saptuo.
“I would like to acknowledge the dissatisfaction for many of you in hearing this background to today’s news, and the situation that MG is in,” Mr Mervis said.
“I recognise that many of you and your families have been involved with the co-op for generations.
“Many more of you have shown ongoing support for MG and its’ co-operative principles, and have been enduring investors in MG.
“I can assure you that your board and my management team have been working tirelessly to arrive at a suitable outcome.
“While perhaps not a universally popular outcome, it is certainly one that, given the current circumstances, is in the best interest of all MG stakeholders.”
Chairman John Spark said the board undertook extensive examination of each of the external proposals received – in their own right and against the outlook for MG.
The agreement with Saputo for it to acquire the operating assets and liabilities of MG for an aggregate total of $1310 million provided certainty for the future of its suppliers and “a far better outcome than anything we can achieve by remaining a stand-alone entity”, he said.
“Importantly it will deliver a valuable package of benefits for both suppliers shareholders and unitholders.”
Cobden, Victoria, supplier director Craig Dwyer who was elected to the board last year on a promise to fix MG also spoke to the meeting.
“The board unanimously supports where we have landed with this conditional sale agreement,” he said.
“Some may see it as far from ideal, but make no mistake, at no point when I first took this job on, did I ever expect to be in the position to be selling MG.
“I signed up to fix it, not sell it, however reality has prevailed and forced our hand.
“I know it was a huge blow to suppliers to hear about the ASX announcement this morning about the agreement to sell MG.
“I understand this isn’t where we wanted to be but it is where we are.
“As a consequence, we as a board have looked at every possible option, from standalone through to equity partnership through to a full share sale.
“Believe me when I say, that no stone has been left unturned by the board and management in exhausting all avenues before arriving at this agreement.”
Mr Dwyer said the board held discussions with the Federal Government, including personal discussions with the Deputy Prime Minister Barnaby Joyce in Canberra two weeks ago.
“The outcomes of that conversation were that it is not an industry problem but an MG one, so it was suggested that we needed to find a commercial resolution,” Mr Dwyer said.
Read more: MG board recommends sale to Saputo Shock over MG announcement Lino Saputo says co-ops need to do better Anger at MG AGM over annoucement Unit holders urged to sell now
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