Fonterra confirms 19pc cut in co-op share price

Fonterra has carved 18.8 per cent off its "fair value" share price, setting it at $4.52 for 2010.

The price, at the mid-point of the valuation range provided by an independent valuer, Duff and Phelps, is 5c higher than a preliminary estimate in December but $1.05 lower than the $5.57 price for 2009.

Fonterra chairman Henry van der Heyden said today the lower price is largely the result of a sharp decline in equity markets and the related credit crunch.

It was "understandable" in light of a dramatic drop in share values around the world, he said

The independent valuer provided directors with a valuation range of $4.18 to $4.86 and the $4.52 price set is the mid-point of that range.

Fonterra requires the 10,700 dairy farmers in its cooperative to hold shares equivalent to their milk production, and the fair value process sets the price at which shares are bought or sold.

But directors will allow farmers holding excess shares (above their current season's production) to sell them at the current season's share price of $5.57, and then any additional shares they need to cover their expected production in the new season at $4.52 at the beginning of the 2010 season, rather than the end.

Farmers doing this will pocket the $1.05 differential between the share prices.

All other farmers who increase their production in the coming season will be required to hold one share for each 1kg of milksolids they produce, and buy any additional shares they need by the end of the 2010 season at $4.52 each.

Fonterra will also continue to limit contract supply for the 2011 season to growth milk, so that existing farmer-shareholders will not be able to sell their shares and supply the cooperative on contract.

- NZPA