KEY POINTS:
Negative feedback from farmers has forced Fonterra to ditch a vote to split up the co-operative.
In November the board of the dairy giant announced a preferred capital restructure to create a company to hold all assets, which would be listed on the stock exchange.
Two votes had been expected under the process - one in May to create the two-entity structure and another in 2010 to decide whether to list.
Fonterra yesterday cancelled the May vote saying it needed more time for consultation before a final vote in 2010.
Chairman Henry van der Heyden said negative feedback showed farmer shareholders were very uncomfortable with outside investors.
"What they're saying is they want a lot better understanding of what this means to the co-operative and what impact it actually will have on their payout," he said.
It was highly unlikely the vote would have got the 75 per cent approval required, he conceded.
Fonterra wanted the capital restructure to provide capital for growth, reduce redemption risk and provide greater investment choice.
The board still believed the preferred option was the best choice.
"What I can say is that where the board is committed is around 2010," van der Heyden said.
"This is the board's own preferred option and I think we make that quite clear in the letter but if any new information comes on the table between now and then, feedback from our farmers of course we'll take that in, listen to it and if it means changing, of course we'll change."
Dairy industry commentator Tony Baldwin said the proposal announced in November had lacked information on key questions.
"There was a certain naivety on Fonterra's part that it could propose such a major change without properly explaining that need for the change and also how some of the concerns that farmers would have would be addressed."
The issue of how returns would be divided between farmers and investors had not been covered off, Baldwin said.
"So it would tend to leave a vacuum that would be filled by fear."
The issues put forward by Fonterra for change of redemption risk and capital for growth were not deeply appreciated by farmers, he said.
"If farmers can start to fully appreciate that they do have a problem then they'll change," Baldwin said.
Fonterra will hold nationwide meetings in March to discuss milk pricing and the relationship between farmers and the co-operative under the preferred capital structure.
Chairman of Federated Farmers dairy section Frank Brenmuhl said it was a good idea to cancel the vote.
"I don't think this is a setback at all," Brenmuhl said. "I think this is a revaluation of the options. I think this is sound business practice."
He said farmers had a little less appetite for risk than Fonterra but this could change when given more information.
* FLOAT PROPOSAL
Fonterra's preferred option for capital restructure is to create a new company with all assets listed on the stock market.
A vote was planned in May to create the new company, with another vote in 2010 to list it.
Negative feedback on outside investors led to the vote in May being cancelled.
The board is still committed to its preferred option but wants more time for consultation.
