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Fonterra today released details of its $500 million public offer, which will be by far the biggest issue to hit the NZX this year when it lists on November 30.
The offer will allow non-farm investors access to the cooperative dairy giant's dividend flow.
Units in the Fonterra Shareholders Fund will be pitched between $4.60 and $5.50 a unit, according to offer documents released by the dairy cooperative today.
The final price will be announced on November 27, following the completion of an auction-style book building process. There will be no public pool.
There are two main components to the scheme - the Fonterra Shareholders' Market and the Fonterra Shareholders' Fund.
The shareholders' market will be available only to farmers to trade their shares among themselves, while the shareholders' fund will be open to both farmers and the investing public.
The fund, which will operate along similar lines to a unit trust, is expected to be worth not less than $500m.
In the book build, selected institutional investors will be invited to lodge bids indicating the number of units they wish to apply for. The final price could be above the indicative range, Fonterra said.
Fonterra has forecast a dividend for the 2013 year of 32 cents a share. The indicative price range implies a gross dividend distribution yield of 5.8 per cent to 7 per cent.
"It is important to note that this is an opportunity to invest in units issued by the Fonterra Shareholders Fund, and not an opportunity to acquire Fonterra shares," fund chairman John Shewan said. "However, the return on a unit is essentially dependent on the performance of Fonterra."
In the offer documents, Fonterra forecast earnings before interest and tax of $1.079 billion for 2012-13, up from $1.028b in the 2011-12 year. The cooperative forecasts a net profit for the period of $690m, up from $624m in 2011-12, and a dividend of 32c, unchanged.
The offer to subscribe for units in the fund is expected to open on November 5.
The offer comprises $500m of units, with the ability to accept oversubscriptions of a further $25m. Fonterra said there was no offer to the general public.
From November 2, farmer shareholders will have the opportunity to sell to the fund economic rights of up to 25 per cent of "wet" shares - shares that farmers are required to hold to meet the the share standard for a season, and any "dry" shares - those held in excess of the requirement.
If economic rights offered by farmer shareholders are less than the minimum size of the fund, Fonterra will issue shares to make up the shortfall but Fonterra said it did not intend to permanently retain the resulting equity.
Chairman Sir Henry van der Heyden said that for the first time in Fonterra's history, members of the public would be able to gain exposure to New Zealand's biggest company.
He said the fund would support liquidity in the Fonterra Shareholders Market, allowing farmer shareholders to trade Fonterra shares among themselves with a more flexible structure, rather than buying and redeeming them through the cooperative.
"This will provide permanent capital for Fonterra and reduce redemption risk, while preserving 100 per cent farmer control and ownership of the cooperative," van der Heyden said in a statement.
"It is an historic day for the cooperative. The fund provides a unique opportunity for the public to gain exposure to the financial performance of Fonterra and the global dairy industry."
- Jamie Gray, APNZ business reporter