NZ's Fonterra shareholders to have final vote on share scheme

Sun Apr 22, 2012 11:10pm EDT

WELLINGTON, April 23 - New Zealand's Fonterra Co-operative Group Ltd, the world's biggest dairy exporter, is to hold a special shareholders' meeting in late June to vote on a radical share trading scheme to free up capital for expansion projects, the company said on Monday.

The co-op, which controls around one third of the world's dairy exports, said the June 25 meeting would be a final vote on a plan to allow farmers to trade their shares amongst themselves, while also setting up a fund to tap outside investment.

The proposed scheme, which was overwhelmingly approved in principle by shareholders in 2010, would see shares traded between farmers in a private market, but the dividend payouts of a portion of shares would be converted into "financial units" and traded on New Zealand's stock exchange.

The concept of the outside units, which carry no voting rights in the co-op, has been opposed by a handful of vocal dairy farmers who fear that it is a first step to opening the company up to outside ownership.

"We have to put a stop to this and use the special meeting to unify the shareholder base so that we can get on with implementing the new refreshed business strategy," Fonterra Chairman Henry van der Heyden said in a statement.

He said the shareholders' council and independent analysts will have gone through the scheme ahead of the meeting and will give farmers all the necessary information on which to vote.

"The Board will be in a position to give unqualified assurances on 100 percent control and ownership, this year," he said.

The scheme is intended to free up funding for the co-op's ambitious plans to expand in emerging markets such as Latin America and particularly China, where it plans to invest heavily to continue developing dairy farms and processing operations.

At present Fonterra must buy and sell shares when members scale up or down milk production, and leave or join the co-op, putting a strain on its balance sheet.

In good times, such as the past three years of booming production and prices, any outflows are offset by farmers buying shares to join the co-op or stepping up their supply.

But as recently as 2007/08, Fonterra's balance sheet took a NZ$600 million ($488 million) hit as the burden of farmers leaving the industry was exacerbated by a mass redemption of shares as drought hit production.

"(This) is ultimately a matter for our farmer shareholders but Fonterra management needs a stable permanent capital base to deliver the strategy," Chief Executive Officer Theo Spierings said.

Owned by around 10,500 dairy farmers, Fonterra was created in 2001 from the merger of the country's two major processing companies, and their jointly owned export agency the NZ Dairy Board.

It accounts for around seven percent of New Zealand GDP and a quarter of its exports. ($1 = 1.23 New Zealand dollars) (Wellington Newsroom)

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