Fonterra raises $270 million from its farmers

Around one third of Fonterra's farmer shareholders have spent $270.7 million buying up new shares in their co-operative as part of changes to its capital structure.

Fonterra's farmer shareholders have been given the opportunity to adjust their shareholding up or down, to anywhere between 100 and 120 per cent of their current or expected production, at a price of $4.52 per share.

In November nearly 90 per cent of Fonterra farmers voted in favour of allowing themselves to buy into an extra 20 per cent of the co-operative.

The move came as part of a three-stage restructuring of the business, as Fonterra said it required more capital to address risks to its balance sheet caused by farmers cashing in their redeemable shares.

The new shares would also help Fonterra's global and domestic growth.

Previously, Fonterra farmers were only able to buy one share for every kilogram of milk solids they produced.

Rather than adjusting shareholding up and down each season strictly in line with milk production, Fonterra farmers can now hold a buffer of up to 20 per cent additional "dry" shares not covered by their production.

Out of Fonterra's 10,500 farmer shareholders, 3,461 have subscribed for a total of 60 million shares worth $270.7 million both to cover anticipated increases in production for the current season and as additional or "dry" shares in excess of production, while 59 applied to surrender a total of 1.6 million shares worth $7.3 million.

Under the new capital structure,farmers now have greater flexibility in the number of shares they own in proportion to their milk production - rather than adjusting their shareholding up and down each season strictly in line with milk production.

As an incentive for farmers to hold a buffer of "dry shares" in excess of production, all shares held on dividend record dates are now eligible for any dividend payments based on Fonterra's profitability.

Fonterra chairman Henry van der Heyden said farmers had responded well to the share issue, despite the difficult circumstances many of them were currently facing.

"It's very pleasing that a significant number of our farmer shareholders have shown their support for the co-operative by taking up more shares," he said.

"This is despite the fact that cash flows continue to be tight and drought conditions are starting to bite in some parts of the country - making it hard for many farmers to take up additional shares right now."


When the new share offer and capital raising was announced late last year, Federated Farmers chairman Lachlan McKenzie said he did not expect farmers to rush out and buy the shares straight away.

"Fifty per cent of farmers can't do it because of cash flow reasons, so it's going to be less than 50 per cent that can pick up [the shares]," he said earlier today.

McKenzie said farmers would have to prove to their bank managers that dividends on the shares would be greater than their interest bill, which would be "a tough ask" in the wake of the recession.

The fact that Fonterra had not put out a prospectus, or equivalent, when the shares were offered had also dampened farmers' enthusiasm for the shares, he said.

"We haven't got a history. If anyone is going to buy shares in a listed company ... if it's a new company you've got a prospectus coming out ... if it's an existing company you've got a history of dividends and profit figures to go on. We don't have any of that significantly for Fonterra."

However, McKenzie added that "95 per cent" of farmers supported Fonterra and wanted it to prosper.

"But to write out another cheque you need a higher level of direction."

The new shares can only be sold and redeemed by Fonterra.

Chairman Van der Heyden said that because individual farmers' situations differed greatly, Fonterra had set no expectation on how much new share capital would be raised during the application period.

He said it was "important to remember the capital structure changes were not just intended to raise additional capital from dry shares, but also sought to reduce the risk of capital leaving the Co-operative through share redemptions when milk production fell."