Fonterra farmer share application period opens December 7

Fonterra’s farmer shareholders will get their first opportunity from next week to invest additional capital in their Co-operative following capital structure changes approved at the annual meeting in mid November.

At the annual meeting, the shareholder vote was overwhelmingly in favour of raising the maximum level of share ownership to 120 per cent of farmers’ current or expected production for the season. Farmers are already required to own Fonterra shares in proportion to their milk production (with one share required for each kilogram of milksolids produced per season) and the change means all farmers can now hold up to 20 per cent additional “dry” shares not covered by their production. All shares will be eligible for dividend payments based on Fonterra’s profitability, providing more of a financial incentive for farmers to own dry shares.

Fonterra Chairman Sir Henry van der Heyden said it was entirely up to individual farmers to decide whether to buy any more shares, and their level of ownership could be anywhere between 100 and 120 per cent of production.

“We recognise that even with the recent increase in this season’s Milk Price forecast, cash flows are still tight for many farmers. Some of them may decide to wait until their financial position strengthens before buying extra shares, or only buy a small percentage extra right now - it’s up to them. For these reasons, we are setting no expectation on the amount of additional share capital that may be raised during this initial application period.”

Share application forms will be mailed to farmers later this week. Farmers will have between 7 December 2009 and 21 January 2010 to decide whether to purchase additional shares at a price of $4.52 per share. During this period, farmers can also choose to sell shares back to the Co-operative to reduce their shareholding more into line with 100 per cent of their production. Farmers will also have the opportunity to increase their shareholdings during future trading windows, the next being the end-of-season period in mid 2010.

Sir Henry said shareholders had made it clear they want Fonterra to remain wholly farmer controlled and owned. “This is their opportunity to back the Co-operative and keep it strong.”

Sir Henry said Fonterra’s Board would be publishing information before the start of the share application period so that farmers have access to information to help them decide whether to purchase additional shares. This would include:

- The estimated Fair Value Share Price for the 2010/2011 season

- The Independent Valuer’s estimated valuation ranges for Fonterra shares (an unrestricted market value as well as a value reflecting that share ownership is restricted to Fonterra farmers only)

- Current forecasts for the share dividend for 2009/2010

- An outline of the Board’s dividend policy for future financial years

- Updates of Fonterra’s prospectus and investment statement