Aussie co-op to vote on Fonterra-like share structure

Murray Goulburn aims to raise $506 million to support its growth strategy. Photo / Getty Images

Supplier-shareholders to decide on $506 million capital raising and ASX listing.

Supplier-shareholders in Australia's biggest dairy co-operative, Murray Goulburn, will decide next month whether to adopt a Fonterra-style capital structure that would involve raising about A$500 million ($506 million) in new capital and the launch of its units on the ASX.

The May 8 meeting follows more than 12 months of consultation and discussion with suppliers, Murray Goulburn (MG) says. The recommended capital structure is aimed at ensuring suppliers retain full control of the co-operative. If approved, all elements of the new capital structure are expected to be implemented by July.

"The recommended capital structure will allow MG to seek approximately A$500 million of capital to support its growth and value-creation strategy to deliver sustainably higher farmgate milk price and future earnings through investment in higher value-add products, improving operational efficiencies and innovation capabilities," said chairman Philip Tracy.

Under the proposal, which remains subject to shareholder approval, most of the new capital will be raised through the initial public offering of a unit trust which will be listed on ASX.

Unitholders will have an economic exposure to Murray Goulburn's business but will not have voting rights in relation to Murray Goulburn or its operations.

Under Fonterra's Trading Among Farmers scheme, the manufacturing and dividend-paying side of Fonterra in theory benefits from a low milk price because it means a lower input cost but MG managing director Gary Helou said under MG's structure, an improved farmgate milk price would remain the co-operative's primary goal. MG's current milk price forecast stands at A$6 a kg.

"Central to the structure is a profit-sharing mechanism which governs the relationship between the farmgate milk price and the dividends and distributions paid to investors," Helou said.

"This mechanism retains the farmgate milk price as the primary measure of success of MG and aligns the interests of external investors and suppliers through increased dividends as the farmgate milk price increases."

If approved, the new structure would give MG the opportunity to pursue its growth and value-creation strategy and at the same time retain 100 per cent supplier control of MG.

The new capital would enable MG to invest in its manufacturing and supply chain and increase market reach in key growth categories, including consumer cheese, dairy beverages and nutritional powders.

Another feature of the recommended structure is that MG shares will have a market value for the first time.

"This is good news for our suppliers as lenders will recognise the value of their MG shares, thereby strengthening supplier balance sheets," Helou said.