COMMENT:

Six years ago this week, when the first trade of Fonterra shares on the NZX went through at $6.66, a reportedly delighted then-chief executive Theo Spierings joked "666 means something to some people but I hope it doesn't for our shares".

Now $8 million man Spierings has gone (not soon enough for many), Fonterra's share price of $4.70 is no one's idea of a joke, and after mixed reaction to the big dairy company's latest market announcements as it tries to soothe concerns about its stretched balance sheet and debt, it seems the devil is indeed lurking, ensuring no one is happy.

Fonterra's iconic icecream maker Tip Top is officially on the block. No surprises there.

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Inherited through the industry mega-merger that created Fonterra in 2001 under special enabling Labour Party legislation, Tip Top was picked as the first asset to go when Fonterra recently declared a $196m net annual loss, the first in its history, and debt of $6.2 billion.

Tip Top, founded 70 years ago, is as Kiwi as jandals. Maybe it launched the international modelling career of Rachel Hunter.

Public reaction to confirmation of the much-tipped sale was swift — an online Save Tip Top petition.

That was predictable. Not so was the reaction of the country's biggest dairy farmer, Fonterra shareholder Colin Armer.

The former Fonterra director said asset sales while the board was still promising dividends was a no-go.

His influence suggests he was speaking for many shareholders.

Shareholder frustration at Fonterra's financial performance spurred an unprecedented rout at recent director elections — but apparently that anger doesn't extend to a desire to sell assets willy-nilly.

"Is it good governance practice when you have a stressed balance sheet to be selling assets instead of withholding dividends?" asked Armer, repeating a question he asked at the embattled co-operative's annual meeting last month.

Fonterra's stretched balance sheet is partly attributed to having no firm earnings retentions policy.

It has been paying out most of its operating earnings to farmers.

Maybe because its balance sheet is under the national and market spotlight, Fonterra seemed to make an extra effort in its December 6 market update to be more detailed than usual about its first quarter performance, while announcing a very predictable cut in its milk price forecast.

Disappointingly for Fonterra bosses, the market reception to the performances of its various divisions was "soft, soft and soft".

Which brings us again to the Tip Top icecream sale.

Fonterra has expressed a desire to keep the company in New Zealand.

Craigs Investment Partners' principal Mark Lister isn't taking bets on that. He thinks there will be big investor and investment company interest in a sale.

That could be a trade sale but there's also the possibility of Tip Top being offered in an IPO.

That said, there's bound to be resistance in the Fonterra shareholder base to the company giving away its fragile claim to being a value-added business if it sells Tip Top.
Which brings us to a line in Fonterra's sand.

It needs to tell us — asap — if its brave review will lead it to pledge to continue being a highly efficient and profitable producer, manufacturer and exporter of top quality commodity products for the world's food and nutrient manufacturers — or a wanna-be Nestle without the funds.