Who moved Murray Goulburn's cheese?

The case for buying into the initial public offering of Murray Goulburn seems clear enough. It's Australia's largest milk processor, taking in 37% of Australia's milk supply.

It also owns the Devondale and Liddells brands (Liddells might be familiar if you're lactose-intolerant). Demand for dairy products from Asian consumers is also growing and, perhaps unsurprisingly, they prefer them free from melamine.

It looks like a sure thing.

Intelligent Investor Share Advisor will provide a recommendation when our IPO review is published this week. In the meantime it's worth asking: Why are the dairy farmers who currently own Murray Goulbourn willing to cede control?

Well, they're not. Investors in the IPO of Murray Goulburn (or more correctly, the MG Unit Trust (ASX: MGC)) will have an economic interest but not voting rights in the business. We'll outline this unusual structure in the review.

As well as maintaining control, there's something else in it for the farmer suppliers. Their shares – which only farmer suppliers can own – should be worth a whole lot more.

Prior to Murray Goulburn's restructuring, farmer supplier shares had a nominal value of $1.00. Indeed, they've recently been able to buy additional shares at a price between $1.00 and $1.24.

By contrast, units in the MG Unit Trust are being issued at a price between $2.10 and $3.20. As the units and shares will have exactly the same economic interest in the business, they should be worth about the same. In fact, shares should be worth more than units because they have voting rights.

You can see why 92% of farmer suppliers voted for Murray Goulburn's restructuring and listing. Free money has a certain appeal.

The maximum number of shares a farmer supplier of Murray Goulburn can own is about 1.6m. It may not surprise you to learn that the company's chairman, dairy farmer Philip Tracy, owns 1.55m shares. No wonder he was a passionate advocate for the restructuring and listing.

The listing won't enrich all farmers – many own just 500 shares each. But the farmers who own lots of shares are going to be much wealthier, and they'll have been pushing the listing the hardest.

If you were ever in any doubt, self-interest wins again.

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