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Dairy Equity's scheme targeting Fonterra shares has taken a new twist with the company now offering to pay a premium for beneficial rights to $20 million worth of the co-op's stock.
The offer comes even though Dairy Equity says it is worried value-added returns attached to the shares
will undershoot this season's current forecast of 45c/kg of milk solids.
Fonterra's share price reflects expectations of current season and future earnings from value-added business, such as branded consumer products.
Dairy Equity said the premium was designed to facilitate more deals that will boost the "critical mass" and credibility of its scheme ahead of a new Fonterra share price forecast for next season, due on December 15.
Any negative news on the future share price - coupled with extra "critical mass" obtained through the premium - could help prompt even more Fonterra suppliers to look at the scheme, Dairy Equity manager Geoff Taylor said yesterday.
"We want the portfolio in a position where it's got legitimacy and momentum before mid-December."
He said he would be surprised if the new forecast picked the share price to rise next season.
Dairy Equity gives Fonterra farmers cash in return for beneficial rights to the value-added component of their payout, and the capital gains attached to their co-op shares.
The new offer - specifically aimed at farmers interested in cash to put into PGG Wrightson's recently announced Uruguay venture - is for $6.80 a share, compared to the current Fonterra price of $6.56.
The $6.80 a share deal is for the same period as the PGG Wrightson Uruguay offer, which closes on December 12. Dairy Equity has previously paid $6.56.
Taylor - a former Fonterra corporate finance manager - said the forecast share price for next season could fall if a valuer's assumptions about current and future season value-added returns had dropped.
Taylor said that, after the special $6.80 a share offer, Dairy Equity might hold its remaining cash for a time if the value-added return from shares was not high enough.
"We do think the cash crunch is out there for dairy farmers at the end of the financial year and we'd really like to promote ourselves as being relevant for the new share price and the returns in the 2007-08 year."
Dairy Equity expected to enter into more deals as the end of season approached.