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A vote on Wednesday to start changing Fonterra's capital structure will be seen by future generations of farmers as a significant step in the co-operative's evolution, says its chairman Henry van der Heyden.
Votes which were 89% in favour of strengthening the share structure, and reducing the share price expressed "great confidence" in the co-operative and its future, said van der Heyden.
A third resolution related to a constitutional change to allow the changes was agreed to by 92.21% of the farmers voting at the co-operative's annual meeting in Ashburton.
Voting was weighted according to a farmer's milkflows, with the larger suppliers having a bigger share of the vote.
The decisions will bind Fonterra's 10,700 farmer shareholders, who forced their directors to drop a vote planned for May last year on folding the co-operative's assets into a corporate subsidiary.
The board feared that it would have been rolled in the planned 2008 vote on splitting the company into a milk-supply co-operative and a wholly-owned corporate holding all the assets and operations.
Farmers were unhappy with the potential loss of control to outside investors in that proposed "bold and brave" float of the nation's biggest business.
Fonterra's 2007 assets of $12.6 billion and revenue of $13.9 billion would have translated to a market capitalisation of about $8billion, which Fonterra adviser Deutsche Bank estimated - before the latest recession - could have been worth around $10 billion by 2010.
The company has since publicly eschewed the concept of selling 20% of the shares to institutional investors and members of the public to raise between $2 billion and $2.5 billion in new "permanent" capital.
Wednesday's new steps start to address Fonterra's "redemption risk" which is growing as a rising value of shares in the co-operative increases the likelihood - and the potential effect on cash flow - of large numbers of farmers cashing in their shares in the same season.
Eventually the price that farmers get for their shares is likely to be partly influenced by how many shares are up for sale, as well as the anticipated yield.
Some observers said farmers may have been left in a good mood for the vote by a surprise 19% boost last week in forecast payout.
It jumped from the $5.10/kg milksolids announced in September to $6.05/kg, the second-highest in the company's history.
The farmers on Wednesday voted to:
- Allow farmers to hold shares equivalent to 120% of their milk production, a 20% increase, with incentives to hold shares even if their production falls (89.61% in favour); and,
- Cut the value of the shares because ownership is restricted to co-operative members (89.71%).
They are expected to be asked at a later stage to allow trading of shares between farmers, without them first having to be sold back to the co-operative, which would disconnect the co-operative from its redemption risk.
The Fonterra Shareholders' Council welcomed the endorsements, and its chairman, Blue Read, said farmers now had an opportunity provide additional capital to their company.
"This is an investment opportunity available to Fonterra farmers for Fonterra farmers and for our co-operative," he said.
Fonterra said in 2007 that its business strategy to aggressively pursue growth opportunities offshore required $3 billion to $5 billion over the following five years.
Read said the capital structure issue had dominated the co-operative's agenda and shareholder consultation had been thorough.
"I have never seen a more genuine consultation process undertaken," Read said.
"Shareholders' feedback...has shaped this proposal."
