Fonterra forced into $470m share issue

Only 250 farmers have offered to trade shares under the Taf scheme, reports Andrea Fox . 

Fonterra farmers have stayed away in droves from their first opportunity to trade in the dairy giant's proposed listed $500 million unit trust fund.

With only 250 of Fonterra's 10,500 shareholders offering to sell the economic rights to their shares - representing about 5 million Fonterra shares estimated to be worth about $30 million - into the Fonterra Shareholders Fund, the company must now honour its unit fund prospectus commitment to issue enough shares to achieve the $500m fund size required by new legislation.

This will have a dilutory effect on the company's earnings per share, an outcome that last night further incensed shareholder opponents of the share trading among farmers (Taf) capital restructure.

Taf, promoted by Fonterra directors as a hybrid structure which would provide New Zealand's biggest company with permanent capital while ensuring continued 100 per cent farmer control and ownership, was narrowly voted by shareholders in June after a scrappy two-year debate.

Chief financial officer Jonathan Mason confirmed a share issue top-up to $500m would affect the co-operative's earnings per share by about 1c.

Vocal anti-Taf campaigner, South Canterbury farmer Leonie Guiney, said farmers were promised repeatedly by directors that Taf was "not a capital raising" but a means of removing share redemption risk from Fonterra's balance sheet. Fonterra currently trades its own shares.

"So now Fonterra will issue $470 million in shares - raising capital and diluting the intrinsic value of all shares," Guiney said. "While they do this they quote a minor dilution in dividend but neglect to mention the effect of issuing shares on the actual share value, after the book building frenzy, of course.

"For those farmers who were forced to share up in 2008 at $6.79, this issue of value direct to the public . . . is little more than theft of their capital value."

In preparation for the introduction of Taf, Fonterra's share value has been held for two years by directors at $4.52. The company had 1.37 billion shares on issue at May 31 this year.

Fonterra yesterday also announced 2500 Fonterra stakeholders had applied to buy units in the $500m unit trust fund under its Friends of Fonterra offer, which closed this week.

They comprised about 900 farmer shareholders, 200 sharemilkers, 70 retired farmers and 1300 staff. A further 260 Australian dairy farmer suppliers had also applied for units.

The number of units applicants will receive will be decided by Fonterra directors after next week's institutional offer to sharemarket investors and a book-build process for units in the fund.

Fonterra Shareholders Council, a farmer-funded watchdog of shareholder interests, joined Fonterra management in putting a bright face on the outcome of the farmer offer.

Council chairman Ian Brown said neither the response to the economic rights offer nor the "Friends" unit offer was unexpected. "I don't think anyone would have expected farmers to commit to the full size of the fund."

It was a "bit of a vote of confidence" in Fonterra that farmers were hanging on to their shares, he said.

Brown viewed the 2500 applications for units from Fonterra stakeholders as positive.

Fonterra chief executive Theo Spierings described farmers' low interest in selling their economic rights in their shares into the fund as evidence of "a wait and see" attitude as to how units traded on the NZX and AZX.