Farmers vote overwhelmingly in favour
In what insiders are calling the “next step in the evolution of the co-operative”, farmer shareholders overwhelmingly voted for significant changes to Fonterra’s capital structure.
At Fonterra’s annual General Meeting in Ashburton on Wednesday shareholders passed two special resolutions in support of the first two capital structure steps. Both steps received 89% shareholder support. Under the provisions of Fonterra’s constitution, the measures needed a 75% approval rate from shareholders.
The rules that changed on Wednesday meant that suppliers had to hold one share in Fonterra for every kilogram of milk solid they produced. If a supplier’s production dropped for any reason, Fonterra had to buy back the excess shares. This provision meant that in times of drought, for example, a lot of money flowed out of the co-operative, making it difficult to fund expansion and innovation programmes.
The proposals that shareholders voted on give them the choice of buying shares worth up to 120% of their production and retaining the extra, or ‘dry’, shares even if their production decreases. Both the ‘wet’ (production-related) and the ‘dry’ shares will attract dividends. Industry figures say that the dry shares proposal could inject up to $550 million into the cash-strapped co-operative.
Step Two involves a new way of valuing Fonterra shares. They are not traded on an open market, so Fonterra shares will be independently valued. Shares will be held at their current value of $4.52 until the value reaches that number under its own steam.
Fonterra’s management want to raise capital to fund expansion and reduce the co-operative’s indebtedness. They had suggested to farmers that a limited sharemarket float of Fonterra might be the best way to raise that capital. Rejecting that idea, farmers made it clear that they wished to retain 100 per cent control and ownership of the co-operative, so management came up with these measures.
“This vote is all about strengthening the co-operative, said Fonterra chairman Sir Henry van der Heyden. “It is as important as the vote that farmers made to form Fonterra.”
The high vote expressed “great confidence in the Co-operative and our future,” said Sir Henry.
The next part of the process, Step Three, is one that would allow farmer shareholders to trade their shares with other Fonterra shareholders.
“We looked for a solution from every possible angle, we’ve stress tested it with Shareholders’ Council and they have given it their full support,” said Sir Henry. “We sought feedback from farmers through meetings with directors throughout the country and hundreds of local shed meetings. The focus at these meetings has been on Steps One and Two. Trading among farmers will be a totally separate consultation with farmers next year.”
Neil Wilson
