By Neal Wallace,Northington Partners

Copyright farmersweekly

Reading Time: 3 minutes

Rejection of a $250 million capital injection from an Irish meat company would leave Alliance Group shareholders with few options and make insolvency a real risk, an independent assessment of the deal warns.

The report by Northington Partners released to the co-operative’s shareholders this week concludes that the $250m offer by Dawn Meats for 65% of the company is the best and only option to meet Alliance’s strategic and financial requirements.

Alliance chair Mark Wynne said while the report is stark, it is also supportive of the deal.

“Their assessment is very black and white,” he told Farmers Weekly.

“It’s very clear if there is a no vote the alternatives are very ugly and most likely require us to go through a process that could result in insolvency.”

Wynne said banks require Alliance repay its debt.

Over the past few years the meat company has been unable to fully repay annual working capital, which has accumulated to about $200m of debt.

“If it’s not the Dawn Meats proposal then someone else is going to have to pay it back.”

The Northington report is blunt: “If shareholders vote no, Alliance has a very limited and unlikely set of alternatives.

“It can pursue asset sales, site closures and large cost reductions, it can attempt to raise capital from shareholders or other investors, or it can go into insolvency.”

Northington values Alliance at a midpoint of 61c a share and the Dawn Meats offer at a midpoint of $1.18/share, a 93% premium.

If approved by farmer-shareholders, the Alliance Group Ltd would be 65% owned by Dawn Meats and 35% by Alliance Co-operative, which would in turn by wholly owned by farmer-shareholders.

The Northington report considers as reasonable the co-operative holding two of five directorships on Alliance Group, with veto rights for a number of major decisions.

Shareholders have expressed regret at having to source outside capital, a view shared by Wynne, but he said Dawn Meats offers more than cash.

“They bring capability especially in beef, a complementary geographic footprint and deep customer engagement.

“The reason I think we will get a yes vote is that not only does it solve our balance sheet issue, but it brings a great partner to the table.”

Some shareholders believe the $40m proposed to be distributed to shareholders is too low, especially given that Alliance has not paid competitive prices for stock this season.

Wynne said provided livestock targets are met the proposal is for the co-op to pay two $20m tranches at the end of the 2026 and 2027 financial years.

These would be a mix of dividends and rebates based on livestock supplied in the previous two years.

It has been a difficult 18 months for Alliance and Wynne conceded they have lost suppliers and not been competitive in the livestock market due to financial covenants imposed by their banking syndicate.

Initial feedback from shareholders indicates support for the capital raise, he said.

Alliance will post a profit this financial year but Wynne acknowledges the new entity will have to perform to win back the loyalty of some shareholders.

“We will have to walk the talk and prove to shareholders that we do what we intend to do.”

He said the co-operative has spent the past 18 months extracting costs and rebuilding every aspect of the business.

“We will be in a much better shape once we address our financial issues.”

A series of 24 roadshow meetings begin on September 29 ahead of a Special General Meeting and final vote in Invercargill on October 20.

The result will be announced the following day.

Before that meeting a webinar will be held involving Wynne, Dawn Meats chief executive Niall Browne and Alliance chief executive Willie Wiese.

Approval requires two thresholds be reached: 75% of shares voted to be yes and more than 50% of the total number of shares in Alliance to be in favour.