Fonterra chairman defends split proposals

By Neil Merrett

- Last updated on GMT

Related tags Van der heyden Stock market Milk

The chairman of New Zealand dairy cooperative Fonterra says its
farmer shareholders are not in danger of losing their controlling
stake of the company should a proposed restructuring and
public offering go ahead.

Henry Van der Heyden claims that the group's members, which also supply the company with milk, would retain control of the divided company unless 75 per cent of farmer shareholders decided to reduce their control. The claims come as the one of the world's largest dairy groups prepares for a structural shake up of its operations, with the preferred plan to split the company into separate processing and farming divisions to float on the New Zealand stock exchange. New Zealand is one the world's key exporters of dairy products, and with Fonterra accounting for 95 per cent of the country's milk exports, any potential changes to the company could significantly affect the global supply chain. To ensure any possible restructuring goes smoothly, van der Heyden has called on shareholders to attend one of the 100 meetings taken place this week across the country to consult on the changes. Van der Heyden defended the split, claiming that requiring a 75 per cent majority to pass any amendments was, in reality, no different to the current company structure and was a sensible way to push through amendments. "A 75 per cent majority vote of farmer shareholders can change most things in our cooperative,"​ he stated. "But you don't get 75 per cent of farmer shareholders agreeing to a change unless there are good reasons. Under the proposals, additional protection would be put in place to ensure farmers would not face losing control to major outside investors, according to Van der Heyden. "No shareholder, other than the cooperative, could hold more than 10 per cent of Fonterra, a protection which would be backed by government legislation,"​ he added. The legislation would prevent shareholders from acting together to get around the ten per cent limit imposed on voting rights. Any attempt to breach this ruling would, under the proposals, face with sanctions including a possible sell-down of shares. This protection would ensure that the farmer cooperative side of the business would not need "enormous" majority to exercise its control, according to Van der Heyden. Fonterra's farmers will be able to vote on the restructuring plans of the company next may. This vote will decide on whether the group should be split into two entities specifically focused on milk production - i.e. the cooperative - and dairy processing - i.e. Fonterra. Van der Heyden claims the split would provide a more transparent milk pricing mechanism. If this decision went ahead, a further vote would then take place after a two year "road test" to decide if the farming business should also be floated, in a move expected to create about 20 per cent outside equity. In the event that the company's plans to list on the New Zealand stock exchange are accepted, the farmers would claim an initial shareholding in Fonterra of about 65 per cent. "Reductions from that level can then be decided upon by the cooperative's directors, but only up to a point,"​ said Van der Heyden. "Any decision to go below 50.1 per cent must be approved by shareholders with a 75 per cent majority shareholder vote - and that could be 20 or 30 years away." ​ This option would also ensure that the Fonterra farmer cooperative would remain fully in the control of milk supply, according to the company. Estimates by the company suggest that it will take 15 years for the farmer cooperative shareholding in Fonterra to drop to 58 per cent, on the basis of one per cent milk growth a year, and moderate capital expenditure. Using these calculations, Van der Heyden said it was reasonable to assume that it would take another 15 years for the share to fall to 50.1 per cent. He added, that no matter what farmers view were for the proposals, it was vital that they are aware of these possible changes before voting. "These are important points that shareholders need to understand, so I am urging them to get out to meetings and, if they can't, to go through the information provided to them,"​ stated Van der Heyden. "While this is just the beginning of the consultation process, it's important farmers take the time now to get involved and that they stay involved so their views can be heard."​ Fonterra is one of the top six dairy companies in the world by turnover, and the world's leading exporter of dairy products, controlling about a third of international dairy trade. It represents the interests of 11,000 New Zealand dairy farmers, who also act as shareholders in the group.

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