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Giant dairy co-operative Fonterra is to launch what it terms a 'comprehensive consultation process' to seek feedback from its farmer shareholders on options for changing its capital structure

Giant dairy co-operative Fonterra is to launch what it terms a 'comprehensive consultation process' to seek feedback from its farmer shareholders on options for changing its capital structure

Giant dairy co-operative Fonterra has put all its shares into a trading halt ahead of launching what it terms a "comprehensive consultation process"  to seek feedback from its farmer shareholders options for changing its capital structure.

Fonterra said it would be making an announcement on Thursday (May 6) and the trading halt on its shares would be in effect till Friday (7th) to "provide Fonterra shareholders and unit holders a full day to review and consider the materials before trading recommences".

Presumably the "materials" refers to a package of proposed options.

It will be very intriguing to see what Fonterra has come up with.

Fonterra announced in 2019 that it would again review its capital structure.

It was also in 2019 that Fonterra announced a 'back to basics' strategy after reporting a financial loss of over $600 million due to a disastrous debt-funded global expansion plan.

Since then it has recovered well. However, having a fit-for-purpose capital structure for the future is vital for the co-operative to enjoy future success.

At the moment only farmer shareholders may directly invest in Fonterra. But there are also Fonterra Shareholders Fund (FSF) units, which are open to all investors and which offer benefits and dividend returns from the performance of the co-operative - but no decision making power for the co-op. The FSF units also provide a mechanism for farmer shareholders of the co-operative to sell their shares.

Farmers have long opposed the idea of outside investors directly investing in the co-operative.

And this clearly remains the case.

As part of the build up to the moves Fonterra is now making, it earlier this year conducted an online survey to flesh out some of the views of its farmers.

This again produced a resounding thumbs down to the idea of outside shareholders investing in the co-operative.

How Fonterra accommodates these sentiments while tackling its need for fresh capital will be very interesting to see.

Fonterra said on Wednesday it "remains in a strong financial position and the consultation process will not affect the co-operative’s ability to operate".

See dairy payout history and economists' price predictions.

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6 Comments

Absolutely fascinating!
The length of the trading halt including at least a full day following the announcement indicates that the options are far reaching.
I disagree that Fonterra needs new capital within its current strategy which essentially is commodities and specialised ingredients.
A lot will depend on what Fonterra's future long term strategy is going to be.
The current structure that includes FSF investor units was essentially a way of minimising the risk of losing milk suppliers who then cashed in their shares. To date, that risk has not eventuated.
KeithW

Keith,
.... essentially a way of minimising the risk of losing milk suppliers who then cashed in their shares....
I would add: ....cashed in their under duress imposed by banks

That's how Tony Gibbs gained control of ENZA in my opinion. Growers lost control of their industry and lost big chunks of capital in the process.
I hope dairy farmers stick to their guns with farmer control.

Hi Keith hope all is well. I'm not sure if I comprehend your last sentence, but I thought Fonterra has lost supply and capital in spite of FSF?

dp

Don't forget to include an implementation unit.

Some commentators are hoping it will be the final nail in the coffin for the quasi-cooperative structure.

REFORM ATTEMPT #23
Fonterra put its shares into a trading halt today, ahead of a major announcement on its capital structure tomorrow. The trading halt won't end until Friday, allowing the market time to absorb the ramifications of what it is about to announce. Fonterra has this endless issue with its co-op structure, made worse by its farmer shareholders wanting the milk payout to be maximised, and keeping the company forever capital constrained.

Can anyone provide an example from any time throughout history where farmers have realised value within a structure in which they have no ownership?