Farmers back first steps of Fonterra revamp

Fonterra chairman Sir Henry van der Heyden. Photo / Kenny Rodger

Fonterra's farmer owners have voted in favour of the first two steps of its capital restructure proposal but uncertainty remains over how much money the co-operative will raise through the revamp.

Just over 89 per cent backed allowing farmers to buy an extra 20 per cent of shares and having the "fair value" share system altered to allow for independent valuation.

The vote followed months of consultation after Fonterra's first capital restructure plan fell over when farmers vetoed the idea of partially listing the dairy co-operative on the stock exchange.

The change will mean farmers who now have to buy one Fonterra share per kilogram of milksolid they produce can buy 20 per cent extra in "dry" shares to allow extra money to be pumped into the company.

Farmers do not have to buy the shares but those who do will be eligible for a value-added dividend on them, although they will not have any voting rights attached.

Fonterra chairman Sir Henry van der Heyden said he had been quietly confident going into the vote that the 75 per cent minimum would be attained but getting close to 90 per cent was a big confidence boost for the company. "They told us they wanted to retain 100 per cent control and ownership of the co-operative. They have stepped up to the play in a big way to strengthen our co-op."

He said the independent valuation would be done next month and farmers would be able to start buying extra shares from then.

But whether farmers would go ahead with opening their wallets would be a decision each would need to make, he said. "It's not compulsory, it's up to farmers whether they want to put money into the co-operative."

Van der Heyden said it was too soon to know how much money would come in. Farmers had until February 20 to take part. The money would then be used to reduce debt.

Van der Heyden said the co-op hoped to get its debt to equity ratio down below 50 per cent with the cash - it was now about 52.7 per cent - and would then look at potential growth opportunities.

Fonterra shareholders council chairman Blue Read said it was difficult to know how many farmers would take up the extra shares. "Given 90 per cent of farmers have voted for it we would expect strong support - but it will be a test - it's easy to vote but much harder to put your money where your mouth is."

Read said the recent upgrade to the milk price forecast for next season would give more farmers the opportunity to take part but it would depend on their confidence in the future as to whether they did.

Read described the positive votes as an evolutionary step for Fonterra.

"To have farmers on side to the degree they are bodes well for Fonterra and if Fonterra is doing well, New Zealand is doing well."

Van der Heyden said consultation on the third step of the restructure was likely to start early next year to discuss whether farmers were keen to allow trading of shares between themselves.

Read said on the surface it appeared to be a reasonable suggestion but it was just at the conceptual stage and it was too early to say how farmers would vote on the idea.