The Capital Structure will result in an increase in the number of Shares and Units on issue. This is likely to result in an increase in dividend and distribution payments under the Profit Sharing Mechanism which is likely to reduce the FMP initially.
8.3.2 Complexity of the Capital Structure
The Capital Structure has been designed to meet the needs of Murray Goulburn and its Suppliers, while simultaneously giving external investors exposure to the financial performance of Murray Goulburn. While the Capital Structure has been carefully designed, it is unique and remains untested.
The Capital Structure is not in the form of a ‘typical’ IPO and there may be some uncertainty from external investors and Suppliers regarding how it will perform. The lack of understanding or confidence in the Capital Structure may reduce the pool of possible investors in the MG Unit Trust, the price of Units and the liquidity of Units.
8.3.3 Volatility of Share value
One of the fundamental principles of the Capital Structure is to provide Suppliers with a market value for their Shares, based on the market value of Units on the ASX. The value of Shares will vary over time due to a number of factors including fluctuations in the domestic and international market for listed stocks, general economic conditions (including interest rates, inflation rates, exchange rates, commodity and oil prices or changes to government fiscal, monetary or regulatory policies, legislation or regulation), investor sentiment, man-made or natural events, the inclusion in or removal of the Units from market indices, expectations regarding the future distributions to Units and general market, business and operational risks affecting Murray Goulburn. Suppliers who have borrowed against their Shares could potentially lose some or all of their Shares if those borrowings are linked to the value of their Shares.
8.3.4 Lack of liquidity
There can be no guarantee that an active market in the Units on the ASX will develop or be maintained indefinitely. Lack of liquidity of Units may result in Suppliers being unable to trade Shares. For example, if a Unitholder was to acquire substantially all of the Units in the MG Unit Trust, it would be likely to impact liquidity in the Unit market, which would affect Suppliers ability to trade Shares on the STP.
As is the case in relation to any ASX-listed entity, an investor owning five percent or more of the Unit Trust must disclose their holding to the ASX and any foreign investor seeking to own more than 14.9 percent would need to comply with the requirements of the Foreign Acquisitions and Takeovers Act (1975) (Cth). To acquire more than 20 percent, an investor would need to make a takeover offer for the Unit Trust (or rely on exemption to the takeover laws).
8.3.5 Failure to implement and maintain operational effectiveness of the STP
As part of the Capital Structure, the STP has been designed to allow Shareholders to trade Shares through the Nominated Broker and Market Facilitator. The STP will need to interact with systems from Murray Goulburn, the Market Facilitator, the Nominated Broker and other third parties.A failure to implement and maintain operational effectiveness of the STP may lead to Shareholders not being able to efficiently trade Shares and may cause reputational and financial loss for Murray Goulburn and affect Shareholder returns. In addition, a failure of the STP may cause loss to Lenders who have provided loans and have taken security over Shares. Murray Goulburn may be required to indemnify those Lenders for that loss in certain circumstances.
8.3.6 Uncompetitive FMP
A fundamental principle of the Capital Structure is to pursue growth opportunities to improve operating efficiency, reduce manufacturing costs, promote innovation and deliver sustainable growth in the FMP. Given the unique structure, there is a risk that the Profit Sharing Mechanism is not appropriately calibrated and gives rise to an uncompetitive FMP, leading to the loss of Suppliers.
8.3.7 Loss of Suppliers
The Capital Structure aims to provide Suppliers with a Share value that represents an enhancement on the current Share value of $1.00 per Share. The proposed IPO may provide an opportunity for Suppliers to realise the market value of their Shares by ceasing to supply to Murray Goulburn in order to retire.
8.3.8 Dilution of economic interest in Murray Goulburn
The issue of Units, which carry identical economic rights to Shares, will dilute Shareholders’ economic interest in Murray Goulburn (although not their voting interest). If the Unit Trust issues additional Units, either as part of a future capital raising or in connection with Rebalancing Transactions described in Section 4.5.3, Shareholders’ economic interest in Murray Goulburn will be diluted further.
8.3.9 Stamp duty risk
Stamp duty is levied by all States and Territories on acquisitions of significant interests in land holding companies. There is a risk that the MG Unit Trust could be subject to stamp duty if the aggregate number of Notes and CPS held by the Responsible Entity is greater than the number of shares on issue. Murray Goulburn has indemnified the MG Unit Trust in relation to this potential stamp duty liability.
8.3.10 Operation of the market and Murray Goulburn liability
In a number of agreements, including the agreement with the Nominated Broker and the Market Facilitator and various service providers that support the operation of the STP, Murray Goulburn provides various undertakings and indemnities, so that if the STP fails or there are breaches of parts of these agreements, Murray Goulburn may be subject to claims from counterparties and Shareholders.
8.3.11 Inability to recover some or all of your investment
There is a risk that Shareholders will be unable to recover some or all of their investment. This may be as a result of a number of reasons including the returns which Shareholders receive from holding Shares is less than the price they paid due to Murray Goulburn’s operating or financial performance. The inability to recover an investment may also be as a result of investors being unable to sell their Shares on the STP. See also Section 8.3.3 for an explanation of the risk relating to the impact that the illiquidity of Units has on the Shares in Murray Goulburn.