Farmers lukewarm on Fonterra shares
Fonterra farmers appear underwhelmed at hoopla over the dairy giant's share trading among farmers (TAF) prospectus launch, with strong indications they will hold tight to their shares, which will force Fonterra to "top up" a $500 million Shareholders Fund pivotal to making the historic sharemarket entry work.
The countdown to Fonterra's sharemarket debut began yesterday, with the issue of the TAF prospectus, and November 5 named as the date listed units in a Fonterra Shareholders Fund will go on sale. Trading on the NZX is expected to start on November 30.
But while Fonterra chairman Sir Henry van der Heyden lauded the launch as "a unique opportunity" for the public to gain exposure to the financial performance of New Zealand's biggest company, dairy farmers are so far lukewarm about getting involved.
That is despite suggestions some would jump at the chance to sell the economic rights to their shares to the fund in exchange for cash as they struggle to make ends meet under a significantly lower Fonterra forecast this season and a current cost of milk production higher than their advance payments from the dairy company.
One large-scale corporate farmer who declined to be named said he would not be parting with any shares and he knew of no-one else in his "circle" of farmers who planned to.
"There are a lot of well-heeled farmers who are not going to release their shares."
Another farmer said farmers at a rural discussion group he attended this week indicated they were "going to hold onto their shares pretty tight, even though they are up against it".
Selling rights to their shares would not be enough to get struggling farmers "out of a hole" because they can only sell up to 7 per cent of their shareholding, both farmers said.
Fonterra unveiled two offers.
A "supply offer" invites farmer-shareholders to sell the economic rights to their shares at three different price ranges or at a final price, under an offer that opens on November 2 and closes on November 21.
The other is a "fund offer" to the public, farmers and "friends of Fonterra" including retired farmers, sharemilkers and permanent staff on both sides of the Tasman. There will be no public pool so public investment will be limited to clients of selected sharebroking firms and banks.
Units, derived from shares farmers sell into the $500m fund, are being offered at an indicative price of $4.60-$5.50, which values Fonterra at $7.4 billion to $8.7b. Units will be listed on the NZX and ASX. That offer opens on November 5. The final price will be announced on November 27. Unit holders will receive dividends equal to those received by farmer shareholders, but cannot own shares or have voting rights.
That way Fonterra leaders have been able to assure farmers of continued 100 per cent ownership and control of the co-operative while attracting permanent capital for growth. Currently the company trades its own shares which its leaders say exposes it to shareholder runs on its balance sheet. Farmers who buy units can convert them to shares later.
Van der Heyden said if necessary the board would issue shares to achieve the mandated $500m minimum fund size.
In the year to July 2013, Fonterra is forecasting a dividend of 32c a share, so the units will carry a gross dividend yield of 5.8 to 7 per cent, depending on unit price.
Shareholders Fund board chairman John Shewan said although the units were not shares, their returns would depend on Fonterra's performance. Fairfax NZ