“The Decision To Merge”
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Transcript of “The Decision To Merge”
“The Decision To Merge”
Daniel Wolf
November 18, 2008
Company Backgrounds
Upstate Farms Cooperative, Inc.
Niagara Milk Producers Cooperative, Inc.
Pre-Merger Structure
Farmer Members Farmer Members
Niagara DFA Upstate Farms
O-AT-KA Milk Products Cooperative
Niagara Milk Cooperative
Upstate Farms Cooperative
Wendt’s Dairy
- Fluid milk
Bulk Sales
- Niagara Milk Coop.
Upstate Commercial
- Fluid milk
- Cultured
Bulk Sales Market Balancing
Commercial Activity
Reasons to Consider Merger
The primary missions of both Niagara Cooperative and Upstate Farms Cooperative were to be value-added marketers of raw milk:
Generate above class price returns for their members Stable competitive milk markets Return on Equity
Through many years of working together at O-AT-KA, Niagara Cooperative and Upstate Farms had come to know and respect one another
We had merger conversations in the past
■ Timing Seemed To Be Right■ Both companies were at similar earnings level.■ Each company would receive full value of their members’
equity shares in the combined company.■ Apparently without the need for any adjustments to that equity.
Reasons to Consider Merger
The merger of the two cooperatives would lead to even higher returns on milk marketing activities for both cooperatives versus what they could accomplish on their own:
A strong leadership position in Western New York; Synergies in milk hauling, processing and administration; A sound capital base for more effective execution of growth
initiatives (product and geographic) Increased competitive position to better serve our customers
Reasons to Consider Merger
Operational Opportunities
Utilization or rationalization of excess plant capacity:■ Combined entity likely will not require 3 fluid milk plants serving
the same geography■ Consolidation of fluid production should yield substantial
savings ■ Fluid milk production consolidation will create an opportunity to
examine new production; such as, specialty products not currently manufactured by either company.
Other Potential Synergies:■ Savings in administrative costs■ Savings in distribution network may be possible
Reasons to Consider Merger
Our World Is Changing
Merge or Retreat
Reasons to Consider Merger
Strategic Opportunities
■ Niagara and Upstate operate similar businesses with similar goals:
■ Profitably market member milk long-term, including downstream profits
■ Greater business value■ Operate essentially in the same geography
Reasons to Consider Merger
Niagara Milk Production by Zip Code
Highest
High
Low
Lowest
Upstate Milk Production by Zip Code
Highest
High
Low
Lowest Lowest
Low
High
Highest
Lowest
Low
High
Highest
Combined Milk Production by Zip Code
Lowest
Low
High
Highest
Lowest
Low
High
Highest
Upstate Farms Cooperative and Niagara Milk Cooperative Pre-Merger
Membership Issues - Benefits
Premium programs offered by both cooperatives include:
Volume Incentive Premium Quality Incentive Premium Hauling Volume Discounts
Membership Issues – Equity Investment
Upstate Base capital plan; $4.00 per
cwt. annual production. Current average member
equity investment of both organizations is near equal on most recent annual production.
No membership dues. No capital deduction.
Niagara Five year revolving plan. Current average member
equity investment of both organizations is near equal on most recent annual production.
Membership dues.
Pre-merger Governance Structure
Upstate 3 areas 12 person board; staggered
3 year terms Current 47 person delegate
body
Niagara 12 districts 12 person board; annually
elected by districts No delegate body
Board Representation Proposal
Board Interim Board For 3 Years
From Upstate: 12 Existing Members From Niagara: 5 Existing Members For A Total Of: 17 Members
After 3 Years Likely 12 – 15 Person Board Elected From The Delegate
Body Determined By Interim Board
Delegate Representation Proposal
Interim Upstate Delegates; 47 Members Niagara Board; 12 Members For Total Of 59 Members
After 3 Years From Each Area, Based On Delegate To Member Ratio
As Determined By Delegate Body and By-Laws.
Other Strategic Considerations
O-AT-KA Included in the Consolidation Tax Considerations Potential Pension Withdrawal Liability
The Merger – Unity/Issues
Delegates of Upstate Farms and members of Niagara Milk Cooperatives voted and approved the merger
A few Niagara Milk members left Even fewer Niagara Milk members became “dissenters”
using NY State Law Asking court to be paid more than the amount in their equity
account
UPSTATE NIAGARA
The Cooperative
That’s Just
A Little Different
Upstate Niagara Cooperative, Inc. Created by the Merger of Upstate Farms & Niagara
Milk on July 1, 2006 USF created by merger of local Cooperatives in 1972 Niagara Milk created by farmers in Niagara County in 1933
Included 90% ownership of O-AT-KA Owned by Farmers & Cooperatives
400+ Individual Dairy Farmers Other Cooperatives
Dairy Farmers of America (DFA) Dairylea
The Merger
O-AT-KA Created to clear markets and ensure home for all
member milk Founded in 1958 by Genesee Valley Cooperative & WNY
Cooperative of the Rochester market Frontier Federated joined in 1961 Dairylea joined in 1962 Niagara County Cooperative (Niagara Milk) joined 1967 O-AT-KA Board approved the sale of Dairylea ownership to
Dairy Farmers of America (DFA) in 2005
The Merger
The Milk Marketing System
Upstate Niagara Commercial Division
Farmer Members Upstate Niagara Coop.
O-AT-KA Milk Products
DFA
Other Coops
Dairylea Bulk Truckload Sales (Other processors)
The Milk Marketing System
Corner Stones of:
The Milk Marketing System
Packaged Fluid Milk
Market Balancing
The Milk Marketing System
O-AT-KA provides security by guaranteeing markets and adding value in three key areas Market Balancing (dairy commodities) Core Products (evap milk 30% US/PR market) Value Added Specialty Beverages
The Milk Marketing System
The Milk Marketing System
Upstate Niagara Governance
MembersNominate and Elect
Area Delegates = Delegate Body
9 Area Directors 6 At-Large Directors (elected by Area Delegates) (elected by all Delegates)
____________________________________15 Member Board of Directors
Transition Period
Directors
2008 2009 2010 2011
Total Directors 16 15 15 15
After Election
Delegates
2008 2009 2010 2011
Total Delegates 57 55 53 51
After Election
AREA I
AREA II
AREA III
HUME
Area IITown/County (not shown)Addison/Steuben Fayette/Seneca
ThompsonOH
CorryPA
RUSHFORD CANEADEA
NUNDAPORTAGE
OSSIAN
SPARTA
BENTON
138 Voting Units/
Members
131 Voting Units/
Members
129 Voting Units/
Members
Revised
2008 Member/Voting Units
Upstate Niagara 3 Areas Board of Directors
3 Area Directors from each area 6 At-Large Directors Staggered 3 year terms
Delegate Body Area Delegates, based on delegate to member ratio as
determined by Delegate Body and By-Laws Approximately 50 delegates Staggered 3 year terms Current Ratio 1:7 (1 delegate to 7 members)
Upstate Niagara Governance
Goals for transition from Interim to Permanent Governance Structure:•Approx. 57 delegates after 2008 elections and approx. 55 delegates after 2009 elections•16 directors after 2008 elections and 15 directors after 2009 elections
398 Voting UnitsOctober 2007
387 Voting Units
October 2008
CurrentGovernance Information
Representation7 to 1
Area I 138 Voting Units 134 Voting Units 20 Delegates 19 Delegates
5 Directors
Area II 129 Voting Units 125 Voting Units 18 Delegates 18 Delegates
6 Directors
Area III 131 Voting Units 128 Voting Units 19 Delegates 18 Delegates
5 Directors
Directors 12
Dir-at-large 4
Total Board 16
Total Delegates 57 55
Voting Units/Representation
Upstate Niagara/ O-AT-KA Structure
Members
Delegates
U-N Board
CEO
Executive Secretary Executive Assistant
COOGM
MembershipCFO
Chief Dairy Economist
Human Resources
O-AT-KA Board
CEO
CFOVP Business Development
Legal Counsel
COO
Together Toward
Tomorrow
Upstate Niagara Simply Working,
Thank You