KEY POINTS:
The proposed listing of Fonterra on the stock exchange could be a "disaster" for farmers and lead to jobs and profits heading off-shore, critics have warned.
The dairy giant's board today recommended to farmers that all of the company's assets, liabilities and operations be split from the co-operative and listed.
The farmer co-operative would be retained and would hold a 65 per cent stake in the new listed company.
A 15 per cent stake would be distributed to farmers and could be freely traded. The remaining 20 per cent would be offered to the public.
However, NZ First primary production spokesperson Doug Woolerton said the board's decision was "worse than expected".
"If implemented, today's proposal will be a disaster for farmers and for our economy as a whole," he said.
Mr Woolerton said Fonterra had a good credit raiting and capital restructuring and a partial float were not necessary to fund future expansion.
"If the proposal is accepted, [farmers] will go from having a full collective share in a company built up over several generations to holding just a 65 per cent stake overnight."
Mr Woolerton urged farmers not to "take the money and run".
Meanwhile, Dairy Workers Union spokesman James Ritchie said he was concerned the shares could end up in foreign hands, taking profits and jobs away from New Zealand.
He said there were other ways of funding expansion, such as withholding pay-outs to shareholders for further capital expenditure. Mr Ritchie said if the ownership in the cooperative was reduced, it would lead to less investment by farmers in secondary processing.
The launch of a new capital structure plan for Fonterra is the biggest decision in the farmer co-operative's history, says chairman Henry van der Heyden.
However, today marks the start of a two-year consultation period, including two shareholder votes, and the earliest date for a possible listing is mid-2010.
The move could see it become the largest listed company in New Zealand.
Fonterra's board has been reviewing the capital structure of the farmer-owned dairy giant with a view to ensuring capital for growth, reducing a redemption risk of farmers cashing in their shares and to enhance shareholder choice.
"I think this decision is actually bigger than the decision we made to form Fonterra," van der Heyden said. "It was a time to be bold and brave," he said.
"We have the opportunity to grow, to control our own destiny, to grow earnings and grow wealth."
The preferred capital structure option was put to farmers at seven nationwide meetings linked by satellite today and would see the co-operative retained but a new company created which would own all the assets, liabilities and operations of the current entity.
Initially the new company would be 65 per cent owned by the co-operative, with about 15 per cent given to farmers and the remaining 20 per cent held by the public.
Farmers could trade their 15 per cent stake after a float, giving in effect a free float of 35 per cent.
Chief financial officer Guy Cowan said there was no firm view on the value of a possible float.
"Still a company with revenues as large as Fonterra is bound to be one of the biggest stocks on the domestic share market, if not the biggest," Cowan said.
Based on current data Fonterra would have a market cap of just over $8 billion.
The first vote was expected in May when farmers would decide on changing the current co-operative into the two entities.
A second vote would follow in 2010 to determine whether to let the new asset-owning Fonterra company list and introduce external capital.
Both votes would require 75 per cent approval and until the second vote was passed both entities would be owned completely by farmers.
"In the board's view this is the best way of preserving the future of farmer shareholders in Fonterra," van der Heyden said.
"We believe that what we are outlining ... will help secure the co-operative's future and many of us have been working on this almost full-time for the past 12 months."
Special protections would be written into the new company's constitution including the co-operative could not own less than 50.1 per cent unless agreed by a 75 per cent shareholder vote and no shareholder other than the co-operative could own more than 10 per cent of the stock.
The company has also asked for legislative protection including at least 50.1 per cent of shares to be held by New Zealanders, a minimum 35 per cent co-operative share holding, a primary listing required to be in New Zealand and for the new company to maintain its headquarters in this country.
Farmers would still get a payout comprising a milk price plus a return on investment in the co-operative but they would also get a dividend on any shares they held in the new company.
"The changes we're talking about are big and bold, but don't underestimate the capacity of farmers for big bold steps," van der Heyden said.
Chief executive Andrew Ferrier said: "We are well positioned to participate in that future growth and our preferred capital structure option would provide the capital to fuel our growth in the future."
FONTERRA QUICKFACTS
* Farmer co-operative created in 2001.
* Largest NZ company with $13.9 billion revenue.
* Accounts for 95 per cent of all dairy exports.
* Collected 14.3 billion litres of milk in 2006/07.
- additional reporting by Newstalk ZB
