Multiple offers to restructure meat processor Alliance Group are firming up with an Irish bid from Dawn Meats a likely front runner

The Irish Times is reporting that Alliance Group is about to have to make a decision on whether to sell up to 70% of its co-operative to Irish processor, Dawn Meats.

Dawn Meats was apparently the under-bidder when Silver Fern Farms was half-sold to Shangair Mailing in 2016.

Since then Silver Fern Farms has been trading with only a minimal debt load. But Alliance Group has struggled under the weight of more than $200 million in debt, a loan its bankers are not comfortable with. And that is made worse by Alliance posting continuing losses.

Alliance's shareholder farmers have signaled they are not up for putting more capital into their cooperative. So the board has been looking for a way out. It hired an investment banker to develop options.

The options that have surfaced include takeovers from local processors, and Saudi Public Investment Fund-owned SALIC. But it is Ireland's Dawn Meats that is emerging as the most likely candidate for Alliance's eight-facility operation.

The Irish Times speculated that it could involve a 70:30 deal, 70% for the Irish, 30% retained by the cooperative shareholders.

A key attraction in their bid is that it would involve a substantial cash injection of about $270 million, it is reported.

But why would Dawn Meats want to invest in the weakest link in the New Zealand red meat processing industry? That is for them to reveal, but reasons could center around a future in a vastly expanded dairy beef sector. Dawn Meats is heavily involved in its home market in this category because Irish and EU regulations don't allow bobby calf culls in the way New Zealand does.

Further opportunities may be being eyed for low-carbon, pasture-raised, traceable beef system, and new demand from EU and UK retailers seeking ESG-aligned red meat that they have deep links with, but can't supply from other sources as European production withers.

Dawn Meats isn't likely just seeking traditional lamb and beef. It’s about locking in access to New Zealand, the world's largest untapped reservoir of ethical, low-carbon beef production. And having a long-term hedge against rising welfare scrutiny, carbon tariffs, and broken supply chains in their current arrangements.

Dawn Meats is an international meat processor with €3 billion ($5.9 billion) in annual revenue, employing over 8,000 staff in 12 countries.

But there is likely to be rear-guard opposition and resistance from a rump of Alliance shareholders. Their opposition will be magnified because some are NZ First MPs, and that party is big on economic nationalism. One is Rural Affairs minister Mark Patterson, who will have access to inside Government analysis.

The economic future for Alliance without a deal looks tough. But the rear guard will promote the idea that 'doing nothing' is the best strategy because of a turnaround since the start of the year in key lamb export markets in the UK and the EU, and the co-op could trade its way out of its difficulties without external capital.

Things will come to a head on August 12 in Invercargill at an Alliance update on progress on the board's search for options.