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Fonterra - Source: ONE News -
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Diary giant Fonterra is set to start the key part of its capital restructure with a special television broadcast to its 10,500 farmers on April 7.
The cooperative has already persuaded farmers to back changes including allowing farmers to hold up to 20% extra "dry" shares in addition to the "wet" shares issued in proportion to their milk supply, and in reducing the value of the shares to allow for the fact that they can only be bought and sold in a limited market.
Now it needs to have them support a proposal that instead of Fonterra having to buy back their cooperative shares, farmers instead must sell them to other farmers, at a price determined by supply and demand.
This would relieve the cooperative of its "redemption risk": a concern that when times are tough, such as in a drought, or low milk prices, large numbers of farmers may decide to quit Fonterra or heavily reduce their milk supply - and their shareholding - with the business being required to find the cash to pay them out.
If a lot of farmers did this, Fonterra could have to find a lot of cash quickly.
The bid to get farmers onside will begin with a TV broadcast on Sky TV on April 1, followed by a series of farmer meetings around the country in the week starting April 12.
The cooperative will need 75% support from the farmers who vote on the proposal.
"It would get rid of redemption risk once and for all, protecting the cooperative and ensuring it was better placed to grow farmer shareholders' investment in Fonterra," says board chairman Sir Henry van der Heyden.
"It would stop money washing in and out of Fonterra and provide the cooperative with a stable base of permanent share capital, which would give certainty about the level of capital, regardless of any changes in milk production in any season," he says.
Redemption risk penalised "loyal" Fonterra shareholders, who effectively had to fund the return of share capital to farmers who chose to quit the cooperative.
Trading of shares between farmers would have the additional benefit of allowing those farmers who have just paid out for a significant block of "dry" shares to be able to trade them - perhaps selling them to free up cash.
Farmers bought $271 million Fonterra dry shares, at $4.52 each, with $135.6m going to the South Island, a fundraising estimated to be worth over half a billion dollars when bank facilities were leveraged off it.
Farmers who hold dry shares will not only be paid a basic milk price - according to the amount of milksolids supplied - but also a dividend from profits on both their wet shares and their dry shares.
The Fonterra Shareholders Council has said that it supports the concept of share trading among farmers. Competition for milk supply is partly driving moves by Fonterra into shifting the full responsibility for share capital redemption onto its farmer suppliers.
The council chairman Blue Read has previously said he wants farmers to trade their shares.
"Not having to hold cash for share redemptions will make it easier to run the business," he says.
