Waterford-based Dawn Meats looks set to have to pay up to 25 million New Zealand dollars (€12.3 million) more to gain a controlling stake in Alliance Group after the New Zealand meat processor signalled it will beat profit targets.
Dawn’s NZ$250 million offer for 65 per cent of the co-operative included a price adjustment mechanism should Alliance’s earnings before interest and tax (Ebitda) exceed NZ$77.2 million for the year to the end of September.
The arrangement was mirrored on the downside with compensation payable to Dawn should Alliance fall short.
Alliance said yesterday it was on track to beat the Ebitda target, triggering an expected NZ$20 million-$25 million additional payment to Alliance’s 4,300 farmer shareholders should they vote to accept Dawn’s offer at a special general meeting on October 20th. The top-up would increase Dawn’s offer from NZ$1.26 per Alliance share to between NZ$1.46 and NZ$1.51 a share.
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Alliance Group chairman Mark Wynne said because the boards of Alliance and Dawn had agreed the offer price based on profit forecasts made in July, the adjustment mechanism was included to protect both sides in the event of any material changes to the business before the end of the financial year in September.
[ Dawn Meats clears regulatory hurdle for New Zealand meat co-op dealOpens in new window ]
“The last quarter of trading can be highly variable and this was the mechanism that squared that away for both parties,” Wynne said.
Net debt and working capital targets had also been bettered by Alliance but made only minor contributions to the price adjustment relative to the Ebitda outperformance.
The final numbers still have to be signed off by the co-operative’s audit firm.
“Our auditors will finish off the accounts and then Dawn will get to look over all of those but they have seen them at a high level and have agreed that it is at that range that would trigger the additional payment.”
[ Dawn Meats’ bid for New Zealand meat exporter faces last-minute challengeOpens in new window ]
Wynne attributed the profit upgrade to cost-cutting and operational improvements rather than any uplift in export prices for sheep meat or beef which have remained buoyant after several tough years.
The profit upgrade was seized upon by a group of high-profile Alliance shareholders opposing the Dawn offer as further evidence the co-operative had turned a corner and was no longer in need of external capital.
The group has shadowed Alliance directors during nationwide shareholder meetings in recent weeks, urging farmers to reject Dawn’s offer in favour of recapitalising the business over a three-year period with a mix of retained profits, land sales and farmer capital.
Wynne has consistently batted away the proposal as “wishful thinking”, ignoring a deadline set by the co-operative’s bankers for the repayment of NZ$188 million of debt on December 19th, which, he said, had been reaffirmed as recently as last week.
However, a spokesman for the shareholder group, large-scale Southland farmer David Pinkney said it was working to shore up its proposal which The Irish Times understands includes the introduction of a new funder to refinance the co-operative’s bank debt.
He questioned the Alliance board’s claims that it was committed to retaining farmer control but had been thwarted by a hard deadline imposed on it by the banking syndicate which left it no option but to recommend shareholders accept Dawn’s offer.
“How hard have they really tried? We are a group of six individuals with full-time jobs and we are very close to pulling together a plan that is credible with very credible partners.”
