Farmers urged to have their say on capital structure

Fonterra Chairman Sir Henry van der Heyden said he had today emailed Fonterra’s farmer shareholders urging them to make their votes count and support the proposed changes to the Co-operative’s capital structure.

“This vote is all about strengthening the Co-operative. It is as important as the vote that farmers made to form Fonterra and it is important that farmers have their say.

Sir Henry said that some farmers have asked if capital structure could be resolved just by having aggressive retentions from payout.

“Neither retentions nor the proposed dry shares will solve the problem on their own. It needs a mixture of both, and the possible Step Three (Trading Among Farmers) to fix redemption risk completely. In addition, having an aggressive retention policy on its own wouldn’t work for all farmers, particularly those that have just joined the industry, and aren’t in a position to sacrifice payout for retention.”

“Some farmers have asked if voting for Steps One (Strengthening the Share Structure) and Two (Restricted Share Value) means they have to take up the extra 20 percent dry shares.

“Farmers can choose to take up no extra shares, or the full 20 per cent, or anything in between.

“The fact is that some farmers are in a tight position and won’t be able to invest in the dry shares right now. There are also other farmers who might not want to take up the shares at this time or they might want to take up a smaller amount.

“Step One has been developed taking into account the different interests of all farmers and is designed to provide them with choice to suit their own financial situations.

“If the vote is successful at the annual meeting, the next decision for farmers is whether they want to take up any additional dry shares. The Board will meet early in December to make sure farmers have the information they need to help them with this decision. We will provide the Estimated Fair Value share valuation and the Board’s approach to dividends and retentions.”

Sir Henry said that some farmers had also asked if Step Two would have any impact on banks accepting the shares as security and some had concerns over this step impacting on the overall net value of their farms.

“We understand that the banks are generally comfortable with the proposal on Steps One and Two, and the shares will still be regarded as good security. While it’s not possible to predict the future share value, the transitional approach to the Fair Value Share valuation may only last for a short period, maybe one or two seasons, before the restricted value meets the $4.52 base price.”

Fonterra’s capital structure proposal represents almost a year’s work. “We have looked for a solution from every possible angle, we’ve stress tested it with Shareholders’ Council and they have given it their full support. Farmers have made it clear that they want to retain 100 per cent control and ownership of the Co-operative and these steps ensure that.

“We sought feedback from farmers through meetings with directors throughout the country and hundreds of local shed meetings. The focus at these meetings has been on Steps One and Two. Trading Among Farmers will be a totally separate consultation with farmers next year,” Sir Henry said.