Fonterra issues bonus shares and changes contracts to help
stimulate growth. Photo supplied.
Fonterra will launch a bonus issue in April that the
dairy processor says will not dilute the value for either
shareholders or unit holders.
The bonus issue will be one additional share or unit for
every 40 held on April 12.
But New Zealand's largest company is also stepping up other
parts of its operation as it settles into a publicly traded
A five-point plan includes a further supply offer enabling
Fonterra shareholders to sell the economic rights of some of
their shares into the Fonterra shareholders fund; a dividend
reinvestment plan to enable shareholders and unit holders to
elect to receive dividends in the form of shares or units;
flexible contracts to give new and growing farmers more time
and options to fully back their milk production with Fonterra
shares; and new opportunities for winter milk supply
contracts in the upper North Island to fuel Fonterra's new
UHT plant at Waitoa.
Fonterra chairman John Wilson said yesterday Fonterra was
committed to providing flexibility for its farmers to help
them manage their shareholdings.
''Milk is the lifeblood of the co-operative. For Fonterra to
grow, we need our farmers to grow.''
With a stable capital base, Fonterra now had certainty and
could offer farmers more ways to grow milk supply and give
them more time to increase their shareholdings, he said.
Forsyth Barr broker Peter Young said the bonus issue would
not dilute value for either the shareholders or unit holders.
Shares on issue would increase by 2.5%, improving liquidity.
The bonus issue was necessary on two counts, he said. It was
necessary to increase the number of ''dry shares'' above 5%
of total shares, important for liquidity. And it was needed
to ease the capital burden for farmers who had to increase
their shares this season to meet the share standard. That was
particularly relevant in the South Island.
There was also an off-market buy-back of ''wet shares'', or
Mr Young said the language used by Fonterra made it sound
more complicated than it was. The supply offer was a means to
buy back stock issued to seed the Fonterra shareholder funds
units last year when few farmers were willing to participate
There was no impact on the funds market from the buy-back,
with the exception that Fonterra was diluting value for all
through the transaction. It issued shares at $5.50 and was
buying them back at more than $7.70.
The co-operative also announced there would be greater
flexibility in the share standard for new and growing
farmers, he said.
''This signals the board's concerns over the level of the
current share price and the additional capital required to
share-up. This acts as a barrier to entry to new farmers
which Fonterra is attempting to minimise.''
Fonterra expected milk production for the season to be up 1%,
despite a 6% increase in the year to date, because of the dry
conditions across large parts of the key dairy regions, Mr
Increasing market liquidity and the lack of market demand
from farmers needing to increase their shareholdings given
the bonus issue may alleviate some pent-up demand for both
shares and units.
Forsyth Barr retained its reduce recommendation on
shareholder funds units and had a target price on the units
Fonterra Shareholders' Council chairman Ian Brown said the
range of measures announced today by the Fonterra board would
be welcomed by all Fonterra Shareholder Farmers.
''A bonus share issue for supplier shareholders and greater
flexibility for new and existing suppliers to become fully
`shared up' are pragmatic board initiatives that the council
The bonus share issue would ease pressure on farmers, some of
whom might have struggled to stay with the co-operative due
to the requirements to meet the share standard, particularly
given the tough conditions many suppliers were facing at the
moment, he said.
Also important was that the redistribution of profit, in the
form of the bonus shares, reinforced the board's claim that
TAF (Trading Among Farmers) was not a revenue gathering
The new contract options will bring some relief for new and
existing suppliers, Mr Brown said.
• A new flexi contract linked to Fonterra's farmgate milk
price would require farmers to buy 50% of shares up front for
growth milk but they would only be required to buy their
remaining shares when the farmgate milk price was above a
• A modified growth contract would allow farmers to buy a
minimum 10% of shares up front for growth milk. Farmers would
not have to purchase further shares until the fourth season.
After that, they would be given more time to increase their
shares, provided they made a specified minimum annual