-
Source: Reuters -
Related
After the hash made of the first capital restructuring plan released back in 2007, Fonterra's board had no option but to get Friday's announcement absolutely right.
And, putting aside Sky TV's cock-up with the live broadcast to farmers on Friday, they have so far ticked all the boxes and done a pretty good job of communicating their plan.
The initial response from farmers groups has also been generally positive.
If there is any criticism, it is perhaps that the plan is not ambitious enough and will only really deal with Fonterra's financial issues for the next five years, at which point it will still need more money.
"It's not a game buster" was how Tim Fulton from New Zealand Farmers weekly put it.
However as chairman Sir Henry van der Hayden reiterated on NZI Business, the plan is first and foremost concerned with fixing the balance sheet, which as it stands is not stable enough to confidently fund future growth.
Currently, Fonterra is forced to borrow hundreds of millions of dollars in order to have enough cash each year to buy back shares from farmers who, for whatever reason, want to leave the co-operative.
The new plan would deal with the issue by eventually setting up a system whereby farmers trade their shares which each other.
So, if a farmer wants to leave the co-operative they would need to find another farmer to buy their shares, and Fonterra would no longer have to buy shares from farmers who leave.
Presumably a proper trading platform will be set up to run the trading of farmer shares - with the NZX no doubt an obvious candidate to run it.
The trading part of the plan is the most interesting and there will be questions as to whether a closed market of Fonterra shares will be liquid enough.
But if farmers embrace the idea - and a full consultation process will be undertaken on this aspect of the plan next year - then Fonterra will be in much better shape.
Questions do still remain though about where Fonterra is heading further out.
If it wants to take on the likes of Nestle in the global food business then it will need plenty of cash to fund an expansion and growth programme.
According to the likes of business commentator Brian Gaynor, the new plan will only provide about $400 million in new cash.
He thinks it needs an injection of about $1 billion.
Still, if Fonterra can get this plan through and get farmers used to the idea of a trading platform... then who knows what's possible after that.
Read more Corin Dann's blogs .
