Dairy IPO allocations scaled back on bidding

Brokers and institutions will have allocations from the remaining $20 million worth of shares in the Dairy Equity float significantly scaled back because of strong demand.

Dairy Equity's offer, seeking up to $100 million, formally opened last Monday. The float is raising funds to buy a beneficial interest in Fonterra shares held by the co-op's suppliers - the rules mean only farmers can actually own the stock.

Some $80 million worth were firmly allocated to brokers and institutions before the offer opened. The float's joint arranger, ABN AMRO Craigs, invited broker and institutional bids last week for the remaining $20 million.

Brian Cloughley, a director of investment banking at the firm, said the bidders would find out today how much of the $20 million worth of shares they would get. That portion of the float was heavily overbid.

"There's been strong demand for the $20 million available."

Cloughley said the allocations of the initial $80 million worth were heavily scaled back on the level sought.

Allocations of the $20 million worth "will also be heavily scaled back, which is a good position to be in".

The managing director of Dairy Equity's management company, Geoff Taylor, has previously raised the prospect of another $300 million worth of floats. The success of the first float boded well for the potential appetite of brokers and institutions for more shares if there were further offers, said Taylor, a former Fonterra manager of corporate finance.

Dairy Equity's share register would end up having a range of institutional and retail shareholders once "mum and dad" investors got stock from brokers, he said. "That's a good mix of shareholders to be able to raise future capital from.

"Clearly the institutions would be interested in having a larger exposure to the sector rather than just limiting it to their share of the current $100 million." But Taylor stressed future floats would depend on how interested farmers were.

The first float was raising money in advance of firm commitments from farmers to enter into agreements with Dairy Equity.

Taylor said, "I think it would be worked back the other way in the future, where if the thing has momentum then it will really be because of demand on the farmer side".


The float

* Demand for $100 million of Dairy Equity shares has been well in excess of what was offered.

* Brokers and institutions bidding for $20 million worth of shares will today find their allocations are scaled back.

* No public pool - retail investors must approach brokers with allocations.

* NZX trading due to start on September 14.


How it works

* Dairy Equity pays farmers for the value of their Fonterra shares ($6.56 a share).

* The farmers retain title to the shares - as is required by Fonterra rules - but agree to give Dairy Equity the "value-added" portion of their annual payout. (This includes Fonterra's returns from areas such as its consumer brands business.)

* If the farmers sell or cash in shares, the capital gain goes to Dairy Equity.