Fonterra has announced its new proposals for trading of shares reports Keith Woodford. It is a complex and sophisticated proposal. I am going to withhold final judgement until I have had some days to reflect on the complex issues. But some issues are already clear. The long term redemption issue is not solved. Chairman Sir Henry van der Heyden said in an email to dairy farmers on 30 March that the proposal would solve the redemption issue ‘once and for all’. Today’s material from Fonterra makes similar claims. But the proposal will not achieve this. It would appear to solve the short term redemption issue from share capital washing in and out due to factors such as drought. And this is important. But it does not protect Fonterra, despite the claims, from long term loss of capital as a result of losing suppliers to new start up companies. In that situation, Fonterra would need to buy back shares to bring the percentage of dry shares back within constitutional limits. The scheme should facilitate acquisition of fixed capital Fonterra needs some fixed capital which is not redeemable. Tradability has the potential to help achieve this, in that it makes dry shares non-redeemable. With the proposed overall cap of 20%, there is potential to add close to a billion dollars of dry share capital.
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