BusinessDesk: Fonterra blames media-savvy minority for extra vote on TAF

BusinessDesk: Fonterra blames media-savvy minority for extra vote on TAF

By Paul McBeth

Fonterra Cooperative Group will go back to shareholders one last time to get its Trading Among Farmers scheme over the line, after finding disquiet among global customers about apparent farmer opposition to the initiative.

Chairman Henry van der Heyden said a vocal minority of Fonterra shareholders had gained traction in the local media, and this was spilling over into the global domain, “damaging Fonterra’s reputation and our global partnership” despite overwhelming farmer support for the scheme at a vote in 2010.

“We have to put a stop to this and use the special meeting to unify the shareholder base so that we can get on with implementing the new refreshed business strategy,” van der Heyden said. “At the moment all we are doing is destroying value and compromising potential business opportunities.”

The dairy exporter plans to hold a special meeting of shareholders on June 25 to discuss the detail of the plan and give farmer-shareholders a final vote to approve the deal.

“We will be asking shareholders to exercise their vote, respect the majority decision of the vote and then move on,” van der Heyden said in a statement. “Anything else has the potential to be severely damaging to Fonterra’s future.”

Fonterra is looking for external capital to fund its global aspirations with the Trading Among Farmers project – a scheme that would enable farmers to sell the dividend rights of their shares into a fund, which would then be available for investors to purchase as units in a secondary market.

Last week, chief executive Theo Spierings said the dairy exporter plans to invest in a new Indonesian plant as part of its growth plans in Asia. Earlier this month Fonterra flagged a $100 million spend-up on building two new farms in China as it looks to produce 1 billion litres of milk in the world’s most populous nation by 2020.

Craigs Investment Partners has been appointed as the registered volume provider for the shareholders’ market, where the farmer owners can buy and sell shares among themselves.

Fonterra’s van der Heyden said the board and Shareholders Council will have completed due diligence on the trading scheme by the time of the meeting. If anything is discovered that is significantly different from the plan outlined in 2010 or needs further constitutional change, extra resolutions will be put to shareholders.

The new scheme also needs Parliamentary sign-off, and the primary production committee has until June 1 to report back to the House after the Dairy Industry Restructuring Amendment Bill passed its first reading earlier this month.

At the time, Labour Party commerce spokesman David Cunliffe said the scheme creates a tension between farmer-shareholders looking for higher farm-gate payments and investors in the fund seeking fatter dividend returns.

(BusinessDesk)

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“damaging Fonterra’s reputation and our global partnership” ....
"At the moment all we are doing is destroying value and compromising potential business opportunities"....
 
This makes no sense....
a) reputation-wise, this does not count compared to the SanLu
b) global partnership, who is that, Nestle?, Oz supermarkets?, Friends in Indonesia (unhappy we send Malay powder to)?
c) what value is being destroyed?
d) we are lucky they are only potential buisness opportunities ....
 
I say send the whole back to the PR dept. for a rewrite....
 
Heard on the radio someone mention that Henry had Cooperative-ness in his DNA. Thought at the time it was a funny thing to say
 
Question: Who owns Fonterra?
 

Yeah. Interesting you should say that. Read it. Didnt understand what they were referring to. Then read it again. Still didnt understand it. The Press release was written in code for insider consumption only. That's the trouble with Press Releases. Who is the audience.

I'd expect Henry's media advisor and the PR 'team' within the Fonterra executive to be more  media savy, than a group of hands on farmers who put time into expressing opinion between farm jobs. But Henry would recognise media savy when he sees it.
 
One of the many catchprases applied to shareholders is 'keeping it in the family', but in this case it is all one way traffic. From a co-operative perspective,there has been no substantial analysis or meaningful debate, the issues have been purposefully obscured, and as can be seen from the dramatic rhetoric, is more about spin than fact.
 
It would be interesting to validate the substance behind claims of damaged partnerships and trade relations. Would that be because we aren't respecting our station as primary producers? Our leaders are desperate to push TAF through, but it won't stabilise the co-operative.
 
I've been trying to do the rounds and gage the feelings on TAF, and can say most farmers around my way, lap this loaded rhetoric right up. 100% controlled and owned does not ensure maintaining a co-operative structure, but it provides a sense of security to current farm owners, and that it seems is good enough for them.
 

I was talking to some farmers in Henry's country on the weekend.  They were hard line supporters of him, but have changed in the last 2/3 months and will vote against TAF in the 2nd vote. The interesting thing is they do not trust Spierings, regardless of their view of Henry. I have yet to encounter a shareholder who does. What about down your way Omnologo?
Some are asking why can't Fonterra have a share situation like LIC. Sure no outside shareholding, but still a vehicle for farmers to sell their shares.

I went to a suppliers update meeting in Lichfield prior to Christmas, and it was very much Henry's patch as he likes to refer to it. It was more a congratulatory and adoration session (particularly from the local shareholders councilor), than examination, I came away quite dismayed, having hoped to hear real debate on TAF. The van der Haydens seem well entrenched in that neck of the woods, even though he himself hasn't been actively farming for many years. Given how they've progressed under the co-operative structure I can't believe what he's pushing for now.
 
Last week I was speaking to a farm owner in his eighties with one of the larger (1000 cows) well established farms, about 15 minutes south of Te Awamutu, and he thought Fonterra has performed well, in that it has progressed from the multi co-op dairy board days, and saw the DIRA imposed FVS as creating wealth (no mention of intergenerational co-op structure), not instability. If someone like that can't see and appreciate the value of a strong co-op structure; I don't know who can. I'm grateful Eddie Glass has the courage and conviction to share his insight and wisdom.
 
 
As far as Theo, I'm not aware of any negative opinion down my way, but my view is he's like any executive on hire to the highest bidder. Henry employed him and controls him, is Theo answerable to supplier owners or the board? The current stewardship 'guiding' Fonterra can do no wrong in eyes of influential farmers around here.
 
 
So CO it's encouraging to hear there are some that think independently enough in the Waikato to at least question convention. I wonder how robust and transparent the debate on TAF is going to be prior to 25th June? I'm expecting a real PR onslaught from Henry and his team (encouraged by the financial sector and govt).

Thanks. As I see it, for a lot of suppliers now questioning TAF it comes down to broken trust and no amount of PR is going to fix that .  Some interesting times ahead.

Interesting times for sure, I'm hoping we can retain control of our co-op. Thanks CO.

Clearly this is a done deal.
But I wonder how many bank managers are phoning clients  and saying 'its in your best interests to vote yes, so you can sell your shares and pay down debt'
Any chance of finding out who and how the Hubbard dairy farms will vote - at one stage he was the largest owner of shares and probably one of the largest mezz lenders for conversions?
Its a shame - it will mean the demise of the co-op no question. The whole cause of this was giving shares value, they should have been $1 in, $1 out.

WSJ column stating 'world's largest processor soon on sale' doesn't help.
http://articles.marketwatch.com/2012-03-06/commentary/31126325_1_fonterr...

Quote: "with its shares to be offered to the public for the first time in a history dating back some 200 years, those investors first in line may be able to scoop up shares in this dairy giant at a substantial discount, well before the froth sets in on the valuation"

Yes read it and weep/wonder.
 
Investors can own shares before the froth sets in
In its latest annual report, the Fonterra board and its auditors approved a fair value share price of NZ$4.52. At this price, Fonterra is being valued at a shade over $5 billion, a 50% discount to the valuations of its nearest competitors, Nestle and Danone. In other words, farmers have in recent years been redeeming their shares in the company at well below the dairy giant’s intrinsic value. And this despite the fact that New Zealand remains the world’s lowest-cost producer of milk, and Fonterra is uniquely positioned for faster top-line growth through its leading presence in emerging markets. All this has come about due to a share price set by an independent expert and not by market forces. Well, this is set to change soon.
The flip side, however, is that under the board’s current proposal, investors will be restricted to “economic” ownership of Fonterra shares (i.e. dividends and price movements), with voting rights to remain in the hands of farmers. This, coupled with the restrictions on foreign ownership, suggests a discount may in fact be warranted. But just how much of a discount? When the market opens later in the year, should farmers unwittingly sell their shares at the current fair value price, savvy investors could own a world-leading dairy company on a creamy 9.9 price-to-earnings, and milk a 6.6% dividend yield.
 

Or alternatively at a PE of 9.9 it may well be a fair price and the others are greatly over-valued.......ie I dont consider the "markets" in the least bit rational.
 
regards

Reading this posted link, you'd think that Nestle are sizing Fonterra up for a little bit of buying.
after finding disquiet among global customers about apparent farmer opposition to the initiative
Other wise what would global customers care?
Imagine, Nestle could do it to stop one of their competitors coming in the back knocking about the licencing agreement (activities ANZ and Chile). And think of the powder they blend for their China brands..
 
A cornerstone investment by Nestle in Fonterra amount would be small change for these characters
Nestlé SA’s $10 billion bid for Pfizer Inc.’s baby food business is good news for its lagging China business.
http://blogs.wsj.com/deals/2012/04/23/nestles-chinese-milk-powder-ambiti...
 
Its the wise heads at Fonterra versu the super smart minds at Nestle, Woolworths, PRC etc, etc.... which team would you put your money on?.....
 
As I seem to remember Fonterra say they are prepared to exit markets and products they expect to find too hard...
 

Indeed, lots of mega corps are cash rich and have nothing to buy thats "cheap"......
Blend?  I dont fathom this....blanding goes on all the time....
regards
 

Yup, here we go. Shortly it will be bye bye Fonterra into foreign control

Can someone help out here? What business is Fonterra in? It can drop $350 million in one year playing market-maker on its trading desk, invest $100 million in 2 chinese farms, yet couldnt put in a $250 million bid on 19 Crafar Farms. Confusing.

Fonterra's strategy has been mixed and depends on the whims of management trends and whom is in charge at the time. Norgate, Ferrier, Henry, the Shareholders Council.
My interpretation of Fonterra is that it is aiming to be the one of the largest traders of bulk commodity milk products. Similar to companies many people won't have heard about yet are extremely profitable and mostly privately owned who dominate their global sector - think Cargill (meat/grain), Vitol (sugar), Louis Dreyfus (Palm Oil/Cotton), Glencore (metals/grain), Olam (Coffee), Wilmar, Bunge, JBSSwift etc..
Long gone from the lingo is 'value added', the brands business is a joke. They are focused on lowest cost processing - investing in South America, they stupidly largest Edendale tower - Accessing markets ahead of the competition (the china bribe) and securing control and therefore price manipulation of markets ( i.e. buying America's WMP export rights). 
It could be viewed the $100m in china is nothing less than an elaborate back hander to chinese officials and good P.R. For open access to such a massive market, $100m is probably cheap and definitely gets them ahead of South American, Californian and Aussie exporters.
True the currency management has been poor but the control of markets and offshore earnings have protected volatility in the payout and reduced risk.
What would Fonterra gain from buying the Crafer farms? They are not the greatest in the first place and NZ farmers are completely overvalued. Look at the number of smart Hamilton cockies investing in Chile not Southland anymore.
From a Farmers perspective opening up to external shareholders is absolutely bad news and will lead to conflict over milk price and event greater conflict there is already a Shareholders Council vs. the Board vs. Management environment which has been well juggled by Henry. But just wait till the external shareholders want milk price linked to a South American pay out or horrifically an open and honest calculation. The TAF creates little benefits and is a really a burning the boats moment - there is no going back once this occurs....

Fonterra's strategy has been mixed and depends on the whims of management trends and whom is in charge at the time. Norgate, Ferrier, Henry, the Shareholders Council.
My interpretation of Fonterra is that it is aiming to be the one of the largest traders of bulk commodity milk products. Similar to companies many people won't have heard about yet are extremely profitable and mostly privately owned who dominate their global sector - think Cargill (meat/grain), Vitol (sugar), Louis Dreyfus (Palm Oil/Cotton), Glencore (metals/grain), Olam (Coffee), Wilmar, Bunge, JBSSwift etc..
Long gone from the lingo is 'value added', the brands business is a joke. They are focused on lowest cost processing - investing in South America, they stupidly largest Edendale tower - Accessing markets ahead of the competition (the china bribe) and securing control and therefore price manipulation of markets ( i.e. buying America's WMP export rights). 
It could be viewed the $100m in china is nothing less than an elaborate back hander to chinese officials and good P.R. For open access to such a massive market, $100m is probably cheap and definitely gets them ahead of South American, Californian and Aussie exporters.
True the currency management has been poor but the control of markets and offshore earnings have protected volatility in the payout and reduced risk.
What would Fonterra gain from buying the Crafer farms? They are not the greatest in the first place and NZ farmers are completely overvalued. Look at the number of smart Hamilton cockies investing in Chile not Southland anymore.
From a Farmers perspective opening up to external shareholders is absolutely bad news and will lead to conflict over milk price and event greater conflict there is already a Shareholders Council vs. the Board vs. Management environment which has been well juggled by Henry. But just wait till the external shareholders want milk price linked to a South American pay out or horrifically an open and honest calculation. The TAF creates little benefits and is a really a burning the boats moment - there is no going back once this occurs....

Fonterra's strategy has been mixed and depends on the whims of management trends and whom is in charge at the time. Norgate, Ferrier, Henry, the Shareholders Council.
My interpretation of Fonterra is that it is aiming to be the one of the largest traders of bulk commodity milk products. Similar to companies many people won't have heard about yet are extremely profitable and mostly privately owned who dominate their global sector - think Cargill (meat/grain), Vitol (sugar), Louis Dreyfus (Palm Oil/Cotton), Glencore (metals/grain), Olam (Coffee), Wilmar, Bunge, JBSSwift etc..
Long gone from the lingo is 'value added', the brands business is a joke. They are focused on lowest cost processing - investing in South America, they stupidly largest Edendale tower - Accessing markets ahead of the competition (the china bribe) and securing control and therefore price manipulation of markets ( i.e. buying America's WMP export rights). 
It could be viewed the $100m in china is nothing less than an elaborate back hander to chinese officials and good P.R. For open access to such a massive market, $100m is probably cheap and definitely gets them ahead of South American, Californian and Aussie exporters.
True the currency management has been poor but the control of markets and offshore earnings have protected volatility in the payout and reduced risk.
What would Fonterra gain from buying the Crafer farms? They are not the greatest in the first place and NZ farmers are completely overvalued. Look at the number of smart Hamilton cockies investing in Chile not Southland anymore.
From a Farmers perspective opening up to external shareholders is absolutely bad news and will lead to conflict over milk price and event greater conflict there is already a Shareholders Council vs. the Board vs. Management environment which has been well juggled by Henry. But just wait till the external shareholders want milk price linked to a South American pay out or horrifically an open and honest calculation. The TAF creates little benefits and is a really a burning the boats moment - there is no going back once this occurs....

Dairy Holdings was a much more strategic supply than the Crafar's.  As a shareholder I would be mighty upset if Fonterra started to bail out 'to big to fail' farms.  The banks need to be taught a lesson, though with the foreign investors (not just Chinese) sniffing around for farms, that is unlike to happen in any major way for a while.
The receivers had run down Crafar farms really badly. 3 of them were drystock farms. Fonterra needs to stick to it's knitting in NZ, not go in to buying up badly managed farms, some of which will be marginal.
 
As to China farms - does it really have any choice in building more farms?  It was 'invited' by China to build 20more farms.  Who would have been brave enough to turn down the invitation? I will say now that I give it a max of 10years, maybe less, before China says, thankyou Fonterra, we will take  the farms now. 

But, that is my question. Is Fonterra in the business of building and running farms? Does it have the expertise?

Fonterra does have farms in NZ.  Though they are technically 'waste management units'.  Their primary role is to manage the effluent from the factories. There is an overall NZ Manager - switched on chap.

A video of Fonterra Farms China:
 
http://www.theglobeandmail.com/report-on-business/video/video-fonterras-...
 

Asia

Video: Fonterra's new venture in China

Reuters Video

Published

Thursday, Mar. 22, 2012 6:36AM EDT

The world’s biggest milk exporter, Fonterra, was embroiled in China’s 2008 tainted milk crisis. But the company is starting afresh on the mainland with thousands of cows shipped from New Zealand

Look at the Synlait example. Can a factory farm?
Some say too much debt, others operational things, where they are is not flush with water...
 

Why didnt they get Landcorp to do it? They would have the skills. If someone came to me and offered me huge money to get into, and initiate and develop something that was outside my immediate skillset, and they were really keen and insistent, believe me I would look over my shoulder quick smart to see what they were seeing that I couldn't see. If I saw the bigger picture, and my future was at risk then I would set about acquiring those skills at home first, and probably buy the crafar farms and learn from that.

Fonterra has the skills. NZ has the skills. You will not make money from the Crafar farms at $250m purchase price - not even Fonterra, not even Landcorp.  Some of the farms should be turned back to sheep/beef.

Agree, if memory is correct wasn't Landcorp bidding at $130 - $140m-ish,
 
So does this make the new owners super smart or soon to be super smarting?
 

CO, how are the voting rights allocated with Fonterra shareholders?...Crafars were .5% of  supply which allowed Allan to become a director. Does S-P now have enough voting power to get someone onto the Fonterra board?...or more to the point what would it take???

Don't have constitution with me at the moment NeilD but a director has to be elected by shareholders unless they are Independent Directors which are nominated by the Board but still need approving by Shareholders.  No shareholder can have more than 5% of the voting rights.

So as a supplier of .5% of total supply and with a little backroom lobbying, which they now have open channels too after the purchasing process, S-P could easily get someone on Fonterra's board?

Certainly wouldn't be easy. There are others who have bigger shareholdings.

True, and around the Taupo region that would be the Landcorp Dairy farming group?....(forgive me just working my way through the "maze')

Landcorp don't supply all their milk to Fonterra.  There is at least one family in the Central Plateau who has significant dairy land holdings that I am aware of and who is probably bigger than Landcorp in that area.

 “damaging Fonterra’s reputation and our global partnership” 
Goodness gracious me Henry.....what kind of person would seek to discredit such a National Treasure and soon to be Historical icon.........
 Perhaps a little objectivity is needed on the part of Fonterra....a little less muscle ..a little more thought.
Or you could just stomp them.

Finally the Poli's are getting it. This is where the real damage to NZ can be done, agonizing over a few run down farms is painfully myopic/kiwicentric. Anyone who thinks NZ product wouldn't be watered down with foreign produced product or even completely  replaced are dreaming...we have no control over what goes on outside our boarders.
But then what can we do about it?...probably very little!
http://www.stuff.co.nz/dominion-post/news/politics/6795923/PM-dismisses-...

Synlait (Bright Dairies) have been in negotiation for this plant for a while now.  I thought the deal had already been done with Synlait. It gives them access to milk outside their usual hunting ground. Open Country don't want it (can't afford it?),  Fonterra doesn't want it so it would make a good fit for Synlait.

So they have Oceania development plans/approvals & Oceania suppliers, and soon the New Zealand Dairies factory and suppliers?
 
If they keep buying you'd think the 51% / 49% would change some time.
 
This is from a year ago:
'http://www.odt.co.nz/news/business/148799/synlait-buys-one-firm-eyes-ano...