Australia’s largest dairy co-operative Murray Goulburn Co-operative Co. Limited (Murray Goulburn) has announced an Extraordinary General Meeting (EGM) to vote a new capital structure that will see the organisation seek approximately $500 million of capital.

Murray Goulburn operates its dairy processing business under the leading Devondale brand.

The EGM will be held in Melbourne on Friday, 8 May 2015.

Murray Goulburn is Australia’s largest dairy foods company. In 2013/14 the company received approximately 3.4 billion litres or 37 per cent of Australia’s milk and generated sales revenue in excess of $2.9 billion. Murray Goulburn was formed in 1950 and remains 100 per cent dairy farmer controlled, with more than 2,500 farmer/shareholders and more than 2,400 employees.

Murray Goulburn is also Australia’s largest dairy food exporter to the major markets of Asia, the Middle East and North Africa, and the Americas. Murray Goulburn produces a range of ingredient and nutritional products, supplies the food service industries globally and its flagship Devondale brand is sold nationally.

“After more than 12 months of consultation and discussion with our suppliers, we have arrived at a historic moment,” said Philip Tracy, Murray Goulburn Chairman. “At stake is our ambition for MG to be a world-class dairy foods business for generations to come,” he said.

Mr Tracy said the recommended capital structure would “ensure suppliers retain 100 per cent control of MG while providing the strong foundations and stable capital base required to pursue growth opportunities and deliver a sustainable increase in the Farmgate Milk Price (FMP) for suppliers”.

“The recommended capital structure will allow Murray Goulburn to seek approximately $500 million of capital to support its growth and value creation strategy to deliver sustainably higher FMP and future earnings through investment in higher value-add products, improving operational efficiencies and innovation capabilities,” Mr Tracy said.

Proposed structure

Under the proposal, which remains subject to shareholder approval, the majority of new capital will be raised through the Initial Public Offering (IPO) of a Unit Trust which will be listed on ASX. Unitholders will have an economic exposure to Murray Goulburn’s business but will not have voting rights in relation to Murray Goulburn or its operations.

The IPO will include a Friends of Murray Goulburn Offer of Units. The Friends of Murray Goulburn offer will provide for a priority allocation of Units for existing and former suppliers, MG employees and local residents in the co-operatives’ dairy regions who would like to invest in the MG Unit Trust at the IPO offer price.

The remainder of the capital would be raised through offers of shares made to MG suppliers called the Supplier Share Offer and Supplier Priority Offer.

Murray Goulburn Managing Director Gary Helou said the implementation of the proposed new capital structure would represent a “milestone achievement”.

“Together with our more than 2500 suppliers we have worked tirelessly to develop a capital structure that strikes the right balance between suppliers and external investors to maximise returns,” Mr Helou said.

Mr Helou said that a profit sharing mechanism which governs the relationship between FMP and the dividends and distributions paid to investors was central to the structure. He said this mechanism would retain FMP as the primary measure of success of Murray Goulburn and “aligns the interests of external investors and suppliers through increased dividends as the FMP increases”.

“If approved by Murray Goulburn shareholders, the new capital structure will give Murray Goulburn the opportunity to pursue its growth and value creation strategy and at the same time retain 100 percent supplier control of Murray Goulburn,” Mr Helou said.

Capital raised to be invested in ‘key growth categories’

Mr Helou said Murray Goulburn would use the capital raised to invest in “world leading manufacturing and supply chain capabilities to improve efficiencies and increase market reach in key growth categories including consumer cheese, dairy beverages and nutritional powders”.

“These initiatives will underpin higher returns to suppliers over the longer term as we capitalise on growing demand for value-added dairy food products in Australia and Asia,” Mr Helou said.

Shares will have market value for the first time

A further feature of the recommended structure is that Murray Goulburn shares will have a market value for the first time.

“This is good news for our suppliers as lenders will recognise the value of their Murray Goulburn shares, thereby strengthening supplier balance sheets,” Mr Helou said.

The recommended structure has been reviewed by an independent expert, Deloitte Corporate Finance Pty Limited. The independent expert has concluded that the proposed capital structure is in the best interests of ordinary shareholders as a whole. A fifth round of supplier meetings discussing the capital structure will be held in late April and early May prior to the EGM. If approved, all elements of the new capital structure are expected to be implemented by July 2015.