KEY POINTS:
As dairying is New Zealand's biggest single export earner, it is important the discussion this year over a possible public share listing by our largest company, Fonterra, takes full account of a wide range of potentially conflicting interests.
The pros and cons of a partial or full listing
- and any associated public capital raising by the co-op - are unlikely to be black and white, and there will be both economic and social factors to bear in mind as the various options are considered.
While parties to the discussion will no doubt have a keen eye on the bottom-line financial effect of potential change, more emotive issues such as farmer control and co-operative spirit will also have a key influence on the debate. So they should - and ultimately these "emotive" factors can translate into financial considerations anyway.
The three key stakeholders in the debate are farmers, Fonterra as a commercial entity and New Zealand Inc in general.
Co-ops are traditionally viewed as providing strength in numbers for small producers by protecting them from market power abuse by others in their sector.
Fonterra suppliers - both small and corporate farmers - own the co-op through shares they must hold in proportion to what they supply, an arrangement which generally forces them to buy more shares if they want to expand production. They must approve any change to the capital structure by a significant majority.
Both Fonterra's chairman, Henry van der Heyden, and Fonterra Shareholders Council chairman John Monaghan believe farmers retaining ultimate control of the co-op will be non-negotiable if there is a full or partial float.
There have been various ideas mooted that would make sure control is not lost by suppliers, such as listing only non-voting shares or ensuring farmers maintain a majority stake overall.
Another suggestion is a float of only the value-add part of the business, related to returns from such areas as consumer products. That would allow farmers dissatisfied with these returns to sell value-add shares and use the capital elsewhere but still sell milk to the co-op.
This might mean less risk that farmers brassed off with Fonterra's current value-add performance would leave the co-op altogether en masse, putting financial pressure on Fonterra as it was forced to pay them out. Fonterra could also have the option of issuing more value-add shares to the public when it needed funds rather than tapping farmers again.
If a listing meant Fonterra's many older farmers wanting to cash up on retirement had to sell at least some shares on market rather than redeem them with Fonterra, that could also help stabilise the co-op's capital position.
Under such scenarios, New Zealand Inc - the wider economy - would benefit as both farmers and Fonterra more efficiently managed their capital.
But farmers need to consider closely whether any listing, no matter how partial, would be privatisation by stealth. If dividend-hungry and financially savvy outsiders were let on to the share registry, that could ultimately lead to pressures for constitutional or operational changes that threaten farmer control, payouts and Fonterra's freedom of movement.
If a listing were to force more transparent financial reporting, Fonterra must look at whether the benefits of tradeability are adequate compensation for the potential effects of greater openness on competitiveness.
Fonterra management also needs to ensure that contemplation of change and its implementation - particularly if change proves only incremental - does not become a massive and ultimately unprofitable distraction from the business of maximising returns from the sale of milk products.
Other parties such as government agencies, NZX and business organisations must make sure their views on the way forward are heard clearly to help Fonterra and its farmers get it right on behalf of all of us.
But farmers will also want van der Heyden and his board to be clear that change is aimed at furthering farmers' interests rather than being unduly driven by those - such as NZX - which might have a vested interest in seeing the co-op list.
Wool clearance
It looks as if a group of disgruntled Wool Equities shareholders will finally get its chance to tackle directors directly over the plethora of issues they have raised about the listed company, including alleged failures to get shareholder approval for various moves.
Group spokesman John Shirtcliff says they have the numbers to call a special meeting and hope it can be held next month.
Wool growers have a major stake in the company - they got shares as part of the carve-up of Wool Board assets in 2003.
They will no doubt hope the meeting provides some sort of closure to the wrangling that has been going on - whether in the form of satisfactory explanations from, and therefore confidence in, the current board, or the voting-in of a new board.
One fresh issue raised by Shirtcliff relates to what he said was an apparent multimillion-dollar loss of value in the company's investment in Canesis between the 2005-06 annual report and its recent sale to AgResearch.
Wool Equities chairman Andy Pearce said if Shirtcliff wanted information on this he should approach Wool Equities.
The company said the size of the writedown had yet to be determined but once it was it did not believe it would be material, or of a size that would require separate disclosure.
Pearce agreed it was possible a special meeting could provide an opportunity for some shareholder clarity and closure over the issues raised. However, he noted Karios Holdings - involving former Wool Equities CEO Mark O'Grady and BioPacific Ventures - and related interests had recently built up a major stake.
"My view at the moment is that we have one group of people with nearly 20 per cent of the shares who are very happy with the direction the company is going in."
Apart from one disclosure issue - which was not fully resolved - Pearce believed Wool Equities had met all its reporting requirements.
A paper from Shirtcliff argues Wool Equities should focus more on investing in companies that will help increase the price farmers are paid for their wool.
