Newsletter Archive:
| Merger Q and A |
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Following the announcement on the merger talks, StraightTalk caught up with both Richard Greenhalgh and Peter Humphreys for their views on the situation. SO WHAT WENT WRONG? We got a long way down the road to doing the merger, including clearance from the OFT in December. However, at the end of the process, there were a small number of important issues to resolve. While we left no stone unturned in our desire to make a deal, unfortunately we could not reach agreement. WHAT’S BEEN GOING ON SINCE OCTOBER? Most of the work has centred on due diligence and business planning. Given the size and complexity of both businesses, this has taken some time. However, this work was necessary so that the Board could base any decisions they take on all the facts. SO WHAT WAS THE MAIN STUMBLING POINT? The critical issue was the valuation of the two businesses. As part of the due diligence process, we commissioned a valuations expert to look at the assets and liabilities of both businesses. The report said that the value of the First Milk businesses was considerably in excess of the Milk Link business. A significant part of this difference is in the growth in value of our shareholding in Wiseman Dairies, which we purchased for £28m in 2004 and is now worth around £60m. We were prepared to show a great degree of flexibility by discounting our valuation premium and then presenting a mechanism that not only rewarded capital but would also put the new business on a sound financial platform. Unfortunately we were unable to reach an agreement with Milk Link. WHY WERE YOU PREPARED TO BE SO FLEXIBLE ON THE VALUATION PREMIUM – AFTER ALL THAT’S OUR MEMBERS’ MONEY? Because we believed that the business case for this merger was compelling. However, despite presenting Milk Link with what we believe was a very attractive proposal, we were unable to reach an agreement with the Milk Link Board. ARE THE TALKS COMPLETELY OVER? At this point, yes. We got to a point where despite our best efforts, we weren’t making any progress in our talks. Therefore it was the right time to bring the talks to a conclusion. ARE YOU DISAPPOINTED? Absolutely. Having spent more than six months getting us into a position to do a deal, we wanted this to happen. We know members will share that disappointment and frustration too. DO YOU STILL BELIEVE THIS WAS THE RIGHT MOVE FOR THIS BUSINESS? Looking at our current stage of development, we need to grow to create a world-class British farmer-owned dairy business. A merger with Milk Link was one path to achieve this, but we have other equally attractive options. Now that the door has closed on Milk Link, we are now focused on other avenues to achieve our goal. NOW THAT THE MERGER IS NOT GOING AHEAD, DOES THAT LEAVE US EXPOSED BECAUSE MILK LINK NOW KNOW ALL DETAILS OF OUR BUSINESS? During the due diligence and business planning process, both sides shared a limited amount of information with each other. As part of this process, both Milk Link and ourselves know a bit more about each other’s business, but no side has any advantage. WHAT NEXT? Running in parallel with our discussions with Milk Link, we have also been looking at alternative plans to develop our business. Since breaking off talks, we are now 100% focussed on these alternative plans and we will pursue these opportunities in the coming months. DOES THIS ANNOUNCEMENT HAVE ANY IMPACT ON OUR FUTURE MILK PRICES? No. Even if the merger went ahead, there would be no immediate impact on milk prices. It is important to state that unlike some milk buyers who have been quoted in the media recently, we are very positive about the current and future markets for your milk. We are also aware that the rise in your farm input costs is putting ever more pressure on producer margins. Milk volumes in the market remain extremely tight and our sales teams continue to highlight farm input costs and push for further increases in all the sectors in which we operate. |