Fonterra speeds up share plan

Share trading between Fonterra shareholders could be on the menu for debate as early as February as the dairy giant's capital restructure starts rolling.

Share trading between the 10,500 farmer-owners in the co-operative will be the third stage of a restructure programme which took its first steps this month when farmers voted in an extra share issue and a revaluation of their redeemable shares.

Fonterra chief financial officer Jonathan Mason said February or March were possible dates for the start of shareholder consultation on share trading.

However, it could be later, depending on when a firm proposal for in-house share trading gained consensus between the board of directors and the Fonterra Shareholders Council, he said.

The shareholder watchdog checked directors' ambitions for a partial listing of Fonterra shares during a 2007 capital restructuring attempt, forcing the board to modify its 2009 proposals to embrace co-operative principles of 100 per cent farmer ownership and control. However, an eventual market listing of New Zealand's only global company is seen as inevitable to unlock its value and provide sufficient capital to pursue global growth ambitions.

Under the present redeemable share structure, Fonterra's balance sheet is vulnerable to redemption rushes if milk production falls.

Meanwhile, work is well under way on preparing for next month's issue of up to 273 million extra shares, not related to milk supply, and the issue of a prospectus, Mason said.

Under stage one of the restructure, every shareholder will be able to buy up to 20 per cent more shares, called "dry" shares. These shares will attract a dividend but will have no voting rights.

Fonterra chairman Sir Henry van der Heyden has suggested the share issue could raise up to $600 million.

Mason said for every 100 milk supply shares a farmer owned or bought, another 20 dry shares would be available.

Applications would open early next month and shares could be purchased in February, Mason said.

Independent valuer Grant Samuel has started work on revaluing Fonterra's shares, stage two of the restructure. The shares currently hold a market value of $4.52 and need to be revalued to recognise their restricted trading nature.

Investment bankers, including Cameron Partners, have advised Fonterra the discount for restricted trading could range between 5 per cent and 30 per cent, but Grant Samuel will make its own judgment, Mason said.

It is the first time Grant Samuel has valued Fonterra shares. Since Fonterra's creation from a huge industry merger in 2001, the job has been done by Dun and Phelps, and its predecessor. The shareholder council appoints the share valuer.

Mason said the revaluation job was "big and complicated" but Grant Samuel is not changing the methodology.

This is a combination of a discounted cashflow model considering future cashflows and a comparison with the marketing multiples of international fast moving consumer goods companies and multiples of earnings before and after depreciation.