FrieslandCampina's investment in Synlait challenges many reasons underpinning farmer support of Fonterra, says Federated Farmers

FrieslandCampina's investment in Synlait challenges many reasons underpinning farmer support of Fonterra, says Federated Farmers

By Willy Leferink

Federated Farmers believes the 7.5 percent shareholding in Synlait taken by FrieslandCampina Investments Holding BV1, a subsidiary of Dutch Dairy Cooperative giant FrieslandCampina, could shake-up the New Zealand dairy industry.

“While the monetary value is modest at around $24.15 million the message it sends is powerful,” says Willy Leferink, Federated Farmers Dairy chairperson.

“As a cooperative, FrieslandCampina’s revenues are similar to Fonterra’s.  You could describe the investment in Synlait as a ‘toe-dipping’ exercise but clearly there is an underlying desire to get exposure to New Zealand liquid milk."

“FrieslandCampina easily has the financial means to acquire more of Synlait later if it so chooses.  Its cornerstone shareholding is to us more like a beachhead."

“It is also significant that even after the public float, Holland’s FrieslandCampina will have a strong shareholding alongside Bright Dairy and Food Co of China and Mitsui & Co of Japan. The prize is clearly Asia."

“While other investors have not meant much to Kiwi dairy farmers, FrieslandCampina most certainly will."

“Having one of Europe’s largest cooperatives enter our market, albeit through a commercial shareholding, may just spark a discussion over how the domestic cooperatives will respond; Fonterra especially."

“While the focus of the last Dairy Industry Restructuring Act (DIRA) review was on Fonterra’s financial redemption risk, Federated Farmers was concerned at the potential for supplier loss."

“Fonterra’s current model is that all suppliers, save for some, either have three seasons to ‘share-up’ or go onto contract milk. Even with contract milk, you have to agree to share-up with Fonterra within six-years."

“Sharing-up in Fonterra is currently done by buying those bank unfriendly highly priced shares."

"To us there has to be a change here."

"A modified “Friends of Fonterra” is how I put it in an opinion editorial."

“What is for certain, things have become very interesting in the dairy industry,” Mr Leferink concluded.

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Interesting aside: FrieslandCampina is a company that was build by a merger between Royal Friesland and Campina in 2008 in a process led by Theo Spierings, who is now the Fonterra chief executive.

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4 Comments

You share-up by buying those bank unfriendly high priced shares and if you cannot, then you have to exit. Fonterra Shares should be bought cash in the wallet and not funded from bank debt.
 
I don't think so. How else can Fonterra lever up to distribute the requisite payout to service farm debt without the necessary equity base?. More so when the currency gains are wanting when international returns are indifferent. A ponzi scheme, no doubt?

Would be interested to see the article remarks expanded.
Is it a case of shares being too much in value (in whose eyes).
Is it making the case for corporate processor terms (like our friends in Ozzz).
 
Would be interested to see the articles remarks expanded in:.
Is it a case of shares being too much in value (in whose eyes).
Is it making the case for corporate processor terms (like our friends in Ozzz).
 
We are not convinced with the conversion case. The real issue we think is the ability/inability to either increase production or convert out of farm profits or retained profits.... or the application of debt driven in to bed rock of land use ..... 
Meaning equity values are not where people would wish.. - so conversion feasibility plans need revision, vendors refuse to sell or accept purchase cash offers...
 
a change in economic is not new....
http://www.largeherds.co.nz/downloads/2009_NZLHA_Conference_Proceedings.pdf
Look at Max Duncan's notes and page 21, or 23 of viewer..
Land prices continued to rise 1999-2000
Conversion margins from sheep to dairy was not as attractive as when land prices were less expensive. It ws about the same price as purchasing an existing Dairy farm. Return on total assets employed has been eroded by the high land costs. Operational earnings to maintain a 10% return would be difficult even if we were to return to employing managers and owning all the stock and plant including extra area managers and administration.
In the interests of the public company's shareholders a decision was made to liquidate the company and net profits returned to shareholders.......
- As an side scroll down and look thru what one J Penno had to say re price signals
 
for perspective and example for farm development case studies ...
http://www.grassland.org.nz/proceedings.php
 

We see Holland’s FrieslandCampina more as a hello Theo move.
 

We think the corproate advice to Synlait of being a bit ropey. This result seem to mean there are three corporate insiders as shareholders (and not all on the same page) a set of mgt insiders and the little man public relying on NZX.com rules and rule breaks for free/fair/ market in shares....... 
 
You can imaging the board room, more like running the united nations. Look at the listed Leighton Holdings and their German Spanish adventures....
http://www.news.com.au/business/companies/leighton-holdings-board-walks-...
 
We would have thought to keep the new Dutch best friends as partners in a cmmercial jv. Letting the thought of their share acquiring keeping the public float bouyant (and of a size that enables liquidity/price discovery - lol)......