Dairy Sector: Will Fonterra share trading go to Stage 4?
July 12th, 2010
Fonterra’s 10,500 farmer-suppliers have approved a plan to establish a restricted market in its shares, open only to members of the co-operative, in what is a major victory for executives and directors after a carefully scripted consultation campaign. Farmers have been distinctly cool on previous capital restructuring proposals which smacked of ceding control and ownership. Now they may have set the ball rolling down the same track by voting to end their “put” option over the stock, potentially saving Fonterra hundreds of millions in redemption costs.
When Fonterra announced a three-stage transformation last year, “trading among farmers” was the third step but it posited a potential Stage 4 where “a small minority” of non-voting stock could be placed with outside investors. Fonterra envisaged its funding needs would be met until 2014, assuming farmers commit additional capital and the co-operative maintains a “sensible” level of retentions. The Shareholders Fund, which is to be set up to ensure a liquid and efficient market for farmers to trade their stock, gives outside investors exposure to dairy but as FedFarmers dairy spokesman Lachlan McKenzie puts it, the fund is “a flexible extension to the public securities Fonterra currently issues,” including NZX-listed bonds. Will there be an efficient market in the shares? Fletcher Building, the largest company on the NZX, has more than 35,000 shareholders and about 607m shares. Daily turnover typically ranges from 0.04% to 0.5% of shares on issue.
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