Fonterra shareholders’ watchdog vote needed on capital structure shakeup

The Fonterra Cooperative Council, which the Fonterra board needs on side to get its preferred capital restructure over the line this year, says it’s yet to form a view of the proposal.

The supporting vote of the council, advocate for the views of the big cooperative’s 10,000 shareholders, sharemilkers, contract milkers and suppliers who don’t have shares, will be one of three required by the Fonterra board to get its major change proposal passed in November.

Fonterra’s farmer-shareholders will also need to support it by 75 per cent, and the sharemarket-listed Fonterra Shareholders’ Fund, which the proposal seeks to axe or further cap and which has its own administrative board, will also need to formally ok that side of it.

Chairman of the 25-member elected farmer council, James Barron, said it hasn’t consulted shareholders yet, and would come out with a view after the first stage of the Fonterra board’s consultation with farmers.

Because of commercial sensitivity – Fonterra has listed securities – the council had not been involved in work behind the proposal.

“We can understand the rationale of the board in reviewing the capital structure and we support the board’s approach in consultation.

“Through this consultation period we will be attending alongside our members to support them in questioning and challenging, because we believe it’s important everyone is informed and involved in this discussion,” Barron said.

“The council will come out with a view and communicate that and why. We’ll be working with the board on behalf of shareholders to fine tune, or do whatever it takes, to ensure when we are asked to consider a draft constitutional change it’s one we believe will have widespread support.”

Barron said the council recognised the board’s aim of a November vote was aspirational, “not set in concrete”.

“That’s really evident through the chairman’s and the board’s messages but I also think it’s the right thing to do as quickly as we can in an appropriate time frame.”

He wasn’t involved in the divisive and convoluted years-long process that led to the 2012 introduction of the present capital structure but understood the difference this time was “like black and white”.

“That will have a positive effect on the timeframe,” he said.

Fonterra chairman Peter McBride and directors are now addressing shareholders and suppliers in meetings around the country.

The board’s consultation process will be in two stages.

The board’s preferred option for a capital restructure is to significantly relax the export juggernaut’s share standard and axe the Fonterra Shareholders’ Fund, which offers outsiders units in farmer-owned shares. The units offer access to share dividends but no voting rights.

Farmers must buy shares to supply Fonterra, which has the lion’s share of the local raw milk market and is New Zealand’s biggest business. The share standard leg of the proposal, based on the board’s quest to secure critical mass milk supply in a landscape of declining national milk production, seems likely to provoke less debate among farmers than the idea of axing of the fund, and restricting share trading to within Fonterra.

While the board’s overarching desire is to protect farmer ownership and control of Fonterra, and the fund has grown little in recent years, it is seen as a demand source for shares.

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