Fonterra farmers mull share options

Fonterra's farmer shareholders are today being offered their first chance to buy extra shares in the dairy co-operative, but Federated Farmers says half of the 10,500 shareholders probably can't afford it.

Prospectuses, allowing farmers to buy up to an extra 20 per cent of shares at $4.52 per share, went out last week with applications due by January 21.

Despite the fifth consecutive rise in whole milk powder prices on Fonterra's globalDairyTrade internet auction platform, last week, amounting to a 95 per cent increase in prices since the middle of the year, Federated Farmers dairy chairman Lachlan McKenzie estimated half of Fonterra's shareholders would not be able to afford extra shares.

If every farmer signed up to 20 per cent extra shares Fonterra would raise $900 million to pay off debt and invest in expansion, but if Mr McKenzie is right, the co-op might only receive $450m.

James Houghton, chairman of Waikato Federated Farmers Dairy Industry Group, said in September, when the plan was first detailed, that 50 per cent of farmers had the ability to buy extra shares. He was interested, then, in buying extra shares, but his bank would probably not allow it so he would look at other options.

Mr Houghton sounded as if he had changed his mind this morning because Fonterra's dividend had dropped from 50 cents, with a 13 or 14 per cent return, to 35 cents.

"I will still try and have a look at the full proposal but, realistically, Fonterra is looking after its balance sheet and we have got to look after our balance sheet.

Fonterra chairman Sir Henry van der Heyden said the co-operative recognised cash flows were still tight for many farmers.

"Some of them may decide to wait until their financial position strengthens before buying extra shares." Farmers who refrain from investing extra cash during this offer will get a second chance later in 2010.

- © Fairfax NZ News