Farmers' choice a bit of a fizzer
Fonterra leaders and merchant bankers celebrated last night while the investment community yawned after farmers voted the tortuous share trading among farmers (TAF) scheme across the line by 66 per cent.
Outgoing chairman Sir Henry van der Heyden said it was a "big day out" for the farmer-owned co-operative with votes representing 85 per cent of milksolids supplied.
But the bogeymen of the institutional investor world whose spectre prompted 33.2 per cent of farmers to vote against TAF yesterday were unmoved.
Sharemarket analyst and commentator Brian Gaynor, executive director of Milford Asset Management, said the green light for TAF was "not greeted with any enthusiasm".
"It's been such a long process, all the enthusiasm has dissipated. No-one is getting excited about it."
Gaynor said he had spent "a lot of time" in the past two years studying the slowly evolving plans for TAF. Milford would now look at the details.
Tower Investments chief executive Sam Stubbs said the vote for TAF was "an important first step, but the first step in a journey".
"Our view is that we have no objection in principle to what is being proposed but we will want to see it operating and delivering on promises before we will be putting money in it."
Stubbs said TAF was "very cleverly designed" given the constraints that Fonterra, a farmer-owned co-operative, worked under, "but we have to see it operating".
Fonterra's 10,500-odd supplier shareholders voted on the broad concept of TAF two years ago this month. At the time directors said there would be no second vote but a fast-expanding vocal bloc of farmer opposition forced yesterday's revisit to the ballot box.
However, they failed to pass a second resolution, which required 75 per cent, to alter the constitution and limit the size of the shareholder fund. The vote was 72.8 per cent.
Van der Heyden said the resolution would be taken back to the annual meeting in November because it was in the company's best interests.
The company has yet to secure enabling legislation for TAF but van der Heyden said he was confident the necessary law changes would be made.
The aim was to launch TAF in November, "but this will depend on market conditions", he said.
TAF was promoted three years ago to remove "redemption risk" from the company's balance sheet. This, Fonterra said, was because its constitution obliged it to be the trader of its own shares, which meant having to cash up the shares of exiting farmers or those wanting to reduce supply. TAF would give the company permanent capital to follow its growth strategy, they argued.
However, the big fish hook for many farmers was in TAF's inherent offer to sharemarket investors to buy dividend-carrying, non-voting units in shares that farmers might sell into a proposed $500 million shareholder fund when they wanted cash.
Farmers were worried about the influence outsiders might have on the share price and their milk price. Opponents argued it would be in unit holders' interest to have a high share price, which could encourage farmers to cash up their shares and return the company to the high redemption-risk position. And they said unit holders could pressure the board into inflating the dividend at the expense of the milk payout.
About 1000 shareholders turned out to yesterday's special shareholders meeting in Hamilton, linked to seven other venues around the country. Many had already voted online or by post.
A powerful entreaty for TAF from new chief executive Theo Spierings seemed to sway some undecided voters, even though he was in Holland on business and for family reasons, and joined the meeting by video link.
But opponents emerged from the meetings saying the redemption risk had been overstated.
Several said the share price had been too high because of poor governance when drought struck in 2006 and forced Fonterra to write share cheques for about $600 million.
Many said they were worried about the disunity TAF had fostered in the co-operative. Mixed reaction to TAF, page 11
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