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The Government says it is prepared to change the law to
support Fonterra's continuing efforts to change its capital
structure.
This capital restructuring process is an exciting opportunity
for New Zealand farmers, and the country as a whole, Prime
Minister John Key said today in his opening statement to
Parliament.
Mr Key said Fonterra's capital re-structuring could allow the
giant dairy cooperative to grow strongly into the future and
deliver on its full potential, but might require changes to
the company's enabling legislation, the Dairy Industry
Restructuring Act 2001 (DIRA).
Fonterra, which controls more than 90 percent of the
country's milkflow, is about to begin the most important step
of its current moves for a capital restructure, to persuade
farmers to trade shares among themselves, which will require
changes to the DIRA.
Agriculture Minister David Carter is already considering
proposals for expiry of provisions in the Act, and is
accepting public submissions until Friday, but that work does
not include issues relating to stage three of Fonterra's
capital restructuring.
Fonterra late last year dropped the traditional "value add"
label for the surplus earnings from fast-moving consumer
goods and some speciality ingredients and listed them as a
profit -- which it anticipates will be 35c - 45c in the
current season, and told farmers it will in future hang onto
25 percent to 35 percent of its distributable profit.
Farmers expect a dividend payment of 20c to 30c per share in
addition to their milk payment -- a total of about $6.05 per
kilogram of milksolids, in the 2009-2010 season.
Until now farmers have had to hold enough shares to cover the
volume of their milkflows, and when those milkflows drop
because of drought, selling up to 20 percent of their
production to another company, or quitting the cooperative,
Fonterra has had to find the cash to pay out the unused
shares.
This exposure to "redemption risk" has cost the cooperative
$1.9 billion in the past two years, and today's comments by
Mr Key can be seen as the start of a debate over Fonterra
quitting that liability in the next few years, leaving
farmers to cash in their shares by trading among themselves.
Directors have held the value of their shares at $4.52 each,
despite a range of estimates which suggest a midpoint of
value of only $3.83 in a market restricted only to Fonterra
farmers.
There is a tacit expectation that eventually the shareholders
will work out that they could considerably boost the value of
their shares by opening them up to outside investment -- a
concept that was resisted in 2007 when shareholders threw out
a 2007 proposal for a partial listing.
