Fonterra eyes final change in share structure

Posted by Josette Dunn on 9th April 2010

Fonterra has unveiled plans to allow its farmer owners to trade shares amongst themselves in a bid to provide members of the dairy cooperative with increased financial flexibility while also strengthening the group’s balance sheet.Under the proposals, farmers would be able to trade shares among themselves at a market price. This differs from the current approach, which allows farmers to be issued with or redeem shares at a price determined by the board on an annual basis.

The move is the final step in a three stage process to “protect and strengthen” the cooperative, Fonterra said. Other changes to the ownership structure allow farmers to own “dry shares” beyond their current or expected milk production levels.

However, Fonterra chairman Sir Henry van der Heyden insisted that the move was not opening a door that would allow the general public to invest in the dairy company.

Fonterra will remain 100% controlled and owned by farmer shareholders and the cooperative will remained focused on paying the maximum sustainable milk price rather than looking to generate shareholder returns, he insisted.

“Farmers would be able to buy and sell shares through the year, meaning we could share up to match production and manage our cash flows better,” van der Heyden said.

He added that the move would provide the cooperative with additional safeguards against destabilising forces. For example, the group would be protected against an overseas company coming into New Zealand and paying “unsustainably high” milk prices in order to “secure a foothold” because it would increase rewards to loyal shareholders.

The Fonterra Shareholders’ Council said that it supports the concept of Trading Among Farmers and has approved taking the suggested approach to farmer shareholders for consultation.

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