Fonterra share sale sows rancour

By PHILIPPA STEVENSON agriculture editor

Fonterra has created new fodder for debate in its director elections with the agreement to sell its half share in New Zealand Dairy Foods to the country's richest man, Graeme Hart.

Auckland Dairy Farmers of New Zealand chairman John Sexton said yesterday that farmers were angry at Fonterra's "hasty decision" to short-circuit the sale process and sell to Hart's Rank Group.

Rank's offer of $1.70 a share, or $119 million, for Fonterra's 50 per cent stake in the domestic milk marketer was matched on price by the farmer-backed Great Milk Company.

The other half of Dairy Foods is owned by present and past Fonterra shareholders in the North Island, who got their non-voting B shares in 1999 in a merger deal by their then company, Fonterra forerunner New Zealand Dairy Group.

Many had formed the Great Milk Company (GMC) in a bid to get control of Dairy Foods.

GMC chairman George Moss said on Friday that his company's bid matched Rank's in share price.

He believed the sale process had been short-circuited, resulting in Dairy Foods' value not being fully realised to the cost of all Fonterra shareholders.

Fonterra chief financial officer Graham Stuart said the GMC offer included conditions on the terms and price of milk Fonterra supplied to Dairy Foods which would have raised Fonterra's costs.

The mega co-op concluded the deal with Rank before an independent appraisal by merchant bank Cameron & Co was available to the Dairy Foods board because it was happy with its assessment of the transaction's value, he said.

Fonterra was "an informed seller" and had the competency to appraise the bids and come to its own conclusions.

"And we're confident we've got that right," Stuart said.

The Cameron & Co report was likely to be more directed to the interests of farmer shareholders, who had a choice whether to sell. Fonterra did not, he said, referring to the company's compulsion to sell by October under its enabling legislation to ensure competition in the milk market.

Fonterra retains ownership of the other major milk company, Mainland.

But Sexton said $1.70 a share was not the best price that could have been realised for all Fonterra shareholders if the agreed sale process had been followed.

"The bids have not been properly evaluated by the Dairy Foods board, the sales committee or the independent adviser, Cameron & Co, and there was no negotiation with the bidders over price or conditions."

Sexton said the Great Milk Company's offer held considerable long-term benefits to add value to their farmer investors that would not be available from the Rank deal.

The issue is likely to add fuel to election debates already gassed up by the resignation of independent Fonterra director Mike Smith in January, and the $50 million illegal exporting Powdergate saga, still being investigated by the Ministry of Agriculture and Forestry.

The eight candidates standing for three seats on the 13-member board are electioneering already. Their nominations were confirmed only last week. Several have hired public relations companies to help put their case to Fonterra's 14,000 voting shareholders. The company has organised the making of a video showcasing each candidate, and 11 meetings throughout the country.

Postal voting runs from April 30 to May 17, with results expected by May 30.

The watchdog Shareholders Council has attracted much less of a shake-up.

There will be just one election out of a possible 10 after nominees matched vacancies in eight wards. In the Te Aroha ward, where a resignation caused a casual vacancy, there were no nominations, so the council will decide how to fill the position.

In the Northern Northland ward, sitting councillor Kevin Baxter is being challenged by Ken Rintoul.

In the Otorohanga ward, where council chairman John Wilson unexpectedly resigned, Robyn Clements' successful nomination raises the number of women on the 46-member council to four.

The two other newcomers are John Bubb, in Hauraki, who replaces Mike Karl, and David Turner, in Canterbury North, who replaces Ted Rollinson.