Fonterra's capital plan unveiled

Fonterra has today mounted a second attempt to persuade its 10,700 shareholder farmers to back a capital restructuring plan. The three-step proposal could take care of Fonterra's capital needs for about the next five years while retaining farmer control and ownership reports The NZ Herald. Fonterra wants to: * Allow farmers to hold shares equivalent to 120 per cent of their milk production, a 20 per cent increase, with incentives to hold shares even if their production falls; * Cut the value of the shares because ownership is restricted to cooperative members; * Later move to trading of shares between farmers, without them first having to be sold back to the cooperative. Consultation on the first two ideas over the next six weeks will frame up a final proposal to be put to the annual meeting in Ashburton on November 18. Each step will require a 75 %endorsement by farmers. "If the first two steps are approved, the third step could be discussed and voted on next year, with implementation possibly in 2011," said chairman Sir Henry van der Heyden. He said the farmers' watchdog, the Shareholders Council, had agreed unanimously to take the proposals to farmers. "The options we are discussing with farmers would strengthen the capital structure and make Fonterra more adaptable and competitive," van der Heyden said. They would encourage farmers to maintain or increase their equity. Farmers had said they wanted to retain 100 per cent farmer control of the co-operative and were willing to provide additional capital to fund profitable business opportunities, said van der Heyden "We need certainty in our equity base to invest in dairy processing operations so as to drive a higher payout". Success of the suggested changes would depend on how much additional capital farmer shareholders were prepared to commit, but directors expected enough new equity might be raised from farmers to fund Fonterra's needs for about the next five years. "This is the best way to ensure Fonterra shareholders receive the highest possible payout on a sustainable basis," he said.