Fonterra acts on plummeting share price

Fonterra's shareholding farmers voted in December for a capital restructuring of the co-operative. Photo / NZH

Fonterra acknowledged "concern about the decline" in its share price over recent weeks and said it will be providing additional financial support to more actively support liquidity on an interim basis.

At Friday's closing price of $2.28 the shares, which only farmers can own, were collectively worth just half - $3.68 billion - of their $7.36b value on May 5 last year, the day before it announced its capital restructuring.

"Since we started consulting on our capital structure review, liquidity in the Fonterra shareholders market (FSM) has been low, and we know there is concern about the decline in our share price over recent weeks and the impact this is having on your balance sheets," said chair Peter McBride in an email to shareholders.

Fonterra's shareholding farmers voted in December for a capital restructuring of the co-operative, which was formed through enabling legislation in 2001.

Fonterra chairman Peter McBride. Photo / NZH

While the new structure creates more flexibility for farmers and creates an easier pathway to joining Fonterra, it required government support to amend the Dairy Industry Restructuring Act (DIRA).

The shares have fallen 23% so far this year, with most of the decline happening after April 27 when the government gave Fonterra's restructuring a green light, with a few trade-offs.

Additional support

According to McBride, the board has been considering additional options to support liquidity in the FSM.

It has already said it will be putting in place additional arrangements to support liquidity in the FSM when it moves to the new flexible shareholding structure, including through arrangements with one or more market-makers.

Among other things, it has said it plans to allocate up to $300 million to support liquidity through an on-market share buy-back programme and other tools.

"While those arrangements are still being worked on, Fonterra will on an interim basis be providing additional financial support to the current registered volume provider to more actively support liquidity in the FSM," it said today.

It did not provide any additional details or immediately respond to a request for comment.

While cabinet agreed to support Fonterra's capital restructure and amend DIRA, it also decided existing dairy regulations should be strengthened to reduce the risks.

Among other things, it wants to increase the degree of independence of Fonterra's internal milk price-setting processes and give the Commerce Commission more power.

Submissions on its proposals are due June 3.