No Fonterra plan B if vote negative

There is no Plan B should Fonterra shareholders next Wednesday reject the third and final stage of the co-operative's capital restruct-uring package, to allow farmers to trade shares among themselves.

Fonterra chairman Sir Henry van der Heyden told the Federated Farmers annual conference in Invercargill yesterday that should the proposal not get the required 75% support, the company would revert to the status quo.

But, it would be difficult to continue its strategy of growing international sales of dairy ingredients and branded products.

"Farmers live and die off the global marketplace," he said.

Telling farmers just how large and internationally significant Fonterra was and therefore the importance of approving the third phase of the restructure package was difficult, he said.

Changing the capital structure would secure Fonterra's capital base and allow it to pursue its business strategy, while also giving shareholders flexibility in the running of their business.

Sir Henry said a strong turnout of shareholders next week was vital to demonstrate the strength of the co-operative, but also to show the Government the proposal had shareholder support.

Implementing share trading among farmers required changes to the Dairy Industry Restructuring Act.

Sir Henry said a sign a co-operative was vulnerable was a lack of participation by its owners, and that was a scenario he feared as the company went into next Wednesday's vote.

When Fonterra was formed, 85% of shareholders in New Zealand Dairies and Kiwi Co-op participated in the vote to merge the two companies.

Last year, just 47% of Fonterra shareholders voted on the first two stages of the capital debate: changing the way Fonterra valued its shares and allowing shareholders to own shares equivalent to 120% of their milk production.

Next week's special meeting will link seven venues around New Zealand, give shareholders five voting options and will cost close to $1 million to run.

Sir Henry said the cost was a reason the company no longer linked multiple venues for its annual meetings and he said if the turnout was poor next Wednesday, he would question whether Fonterra would hold similar meetings again.

In response to a question, Sir Henry said in 2001 when Fonterra was formed it handled 96% of the country's milk flow.

Today, total milk production has grown but Fonterra's market share has been reduced to 90%.

He said it was a tough business and new competing dairy processors appeared to rely heavily on milk Fonterra had to supply them under Dairy Industry Restructuring Act, milk he said was obviously cheaper than if bought from farmers, because companies still sought it.

"If you look at the strategies of our competitors, they do no different to Fonterra.

"They buy off-the-shelf stainless steel, put milk through it and sell it to a customer."

But they lacked scale, which he said meant the cost of production would become an issue.

 

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