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Fonterra Co-operative Group Ltd directors are staging more than 100 meetings for farmer shareholders this week to "clear the air" over concerns about a possible loss of farmer control of the company.
Fonterra, New Zealand's largest company, wants to split into a milk-supply co-operative and an operational subsidiary and list about 35 per cent of its shares on the NZX so it can raise capital through outside investors for overseas investments.
The company controls nearly 40 per cent of the global trade in dairy exports, and its 2007 assets of $12.6 billion and revenue of $13.9 billion mean it will dwarf the present biggest listed company, Telecom.
But some farmers have expressed concern that the co-operative's directors will be able to dilute their initial 65 per cent stake in the listed subsidiary to just above 50 per cent, without further consulting farmers.
Fonterra chairman Henry van der Heyden said today the farmer shareholders would never lose control of the co-operative "unless, at some point in the future, a 75 per cent majority vote of shareholding farmers decided to relax the control mechanisms that are being proposed".
The company has said the Government will set a minimum 35 per cent stake to be held in the listed company by Fonterra farmers, and directors have said 35 per cent will be enough to retain control, as long as other shareholders' stakes are capped at 10 per cent.
Mr van der Heyden said that, technically, the provision in the co-operative's constitution for a 75 per cent vote by farmers to approve major changes meant that farmer control could be diluted.
"In reality that same possibility exists today," he said.
"But you don't get 75 per cent of farmer shareholders agreeing to a change unless there are good reasons."
"The farmer co-operative does not have to have an enormous majority ownership to exercise control."
New legislation would prevent groups of shareholders acting "jointly and in concert" to get around the 10 per cent caps on shareholdings.
This would be closely monitored and enforced and would include sanctions such as requiring the sell-down of shares, he said.
He said any vote to drop the co-operative's stake below 50.1 per cent could be 20 or 30 years away.
Prior to any decision by the farmer co-operative to dilute its shareholding in Fonterra, there were a range of funding options available.
"If Fonterra identifies an investment opportunity, it has the option of raising debt and it can also retain earnings," Mr van der Heyden said.
"Beyond this, it could make a call for new capital and at that point the co-operative could respond by retaining dividends it receives from its investment in Fonterra, use capital from milk growth to invest in Fonterra, use higher earnings from Fonterra to fund debt or call on farmers for more equity."
Diluting the co-operative shareholding in Fonterra would likely be the last option considered, he said.
"It could take up to 15 years for the co-operative's shareholding in Fonterra to drop to around 58 per cent, based on 1 per cent milk growth a year, and moderate levels of capital expenditure," Mr van der Heyden said.
"Dropping to 50.1 per cent would likely take twice as long."
Fonterra's farmer shareholders will vote next May on splitting the restructuring the company to two entities, and the introduction of a new, more transparent milk pricing mechanism. This co-operative milk supplier and its subsidiary processor and marketer would then be "road tested" for around two years before farmers vote again to decide if the corporate is listed on the NZ and Australian stock exchanges, introducing around 20 per cent outside equity.
Fonterra Shareholders Council president Blue Read said it was too early to gauge accurately farmer opinion.
"The farmers are hungry for information," he said. "Almost 100 per cent of the comments we are getting are 'show me the milk price' before they go anywhere."
Fonterra is working on a mechanism to determine a milk price if it lists.
Federated Farmers is also running meetings on the plan this week.
Frank Brenmuhl, president of the federation's Dairy Farmers of NZ, said the vote could be closer than people thought.
- NZPA
