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CLOVER RESTRUCTURING WILL GIVE FARMERS MORE POWER

On the heels of a recent vote by Clover shareholders to proceed with a far-reaching restructuring of the company’s share structure. Clover Industries Limited (CIL) chairperson John Bredin has revealed plans to ensure producers maintain their grip on the company.

‘I remain totally convinced that this transaction has ensured a prosperous future for dairy farmers.’

Shareholders recently approved the repurchase of ordinary Clover shares held by BEE partner Hosken Consolidated Investments (HO). The repurchase will be funded in part by the sale of Clover’s 45% stake in Danone Clover and by utilising existing debt facilities.

Also given the thumbs up was a share repurchase of 5 million ordinary shares in the share capital of Clover from the CIL Stabilisation Trust. In addition, a special dividend to preference shareholders of R4,10/share was accepted.

While in the past the value of ordinary shares – which have voting powers and in effect control the business – had been pegged at 10c. an independent valuation put the share price at R9,34. When the company lists on the JSE, this could be an indicative value at which share* may trade. Bredin said he hoped farmers wouldn’t sell their shares but would rather hang on to them and use them as collateral if they needed to raise finance. “The new situation represents a huge increase in value for producer shareholder”. Farmers are by far the biggest beneficiaries of this transaction,” Bredin said.

But there are fears that if farmers sell their shares, producers will lose control of the business. Many strategies to mitigate this risk have been or are in the process of being implemented to counter this possibility.

“The Clover Stabilisation Trust owns about 15% of the shares in Clover, and is in turn controlled 100% by the producer body,” explained Bredin. “All the trustees of this trust are elected by the producers. We’re asking that those farmers wanting to sell their shares offer them to the Trust first, at the market value prevailing at the time. We aim to increase the Trust’s holding to 35% of ordinary shares and more by utilising any dividends accruing to it, and thus giving the Trust an effective controlling stake.”

Another strategy is to ensure farmers work in unity. “Producers own or control 85% of the company. The intention is for producers in the major milk collection regions to strengthen the Clover Producer Forums at this level. Any members of such a forum wishing to sell their shares will be asked to offer them to those remaining members at the prevailing price before placing them on the open market.”

Shareholders also approved the purchase by Clover’s top management of 15% of ordinary shares, funded with a soft loan from Clover. “I have no problem with that. It’s a good thing,” said Bredin. “One of Clover’s real successes, the reason it’s made a successful transition from a cooperative to a company, is because there has always been a strong relationship between the board and management. There has always been a clear understanding of and respect for each others’ roles.”

Bredin said he felt strongly about producers retaining control of Clover.

“This is the way farmers can effect control for the foreseeable future and ensure Clover’s financial viability. I believe that with the new capital structure it’s possible to offer investors an attractive return on their money and at the same time create an encouraging and rewarding milk production environment for producers.

“There will always be the prophets of doom, but I remain totally convinced that this transaction has unlocked the true value of Clover and its brands for producers and at the same time has ensured a prosperous future for dairy farmers.”

Source: Farmers Weekly – Robyn Joubert