KEY POINTS:
Dairy giant Fonterra Co-operative will put more options to farmers for changes to its capital structure, despite farmer nervousness about its plans.
"One thing is certain - we can't do nothing", chairman Henry van der Heyden told a conference in Taranaki today.
In February, Fonterra abandoned a farmer vote on splitting into a milk-supply co-operative and an operational subsidiary.
But Fonterra needed extra capital to grow, even though a large group of farmer shareholders were unhappy about the long-term implications.
"Now we need to step back and look at what other options are open to us to address redemption risk and capital for growth," van der Heyden said in speech notes to a Taranaki conference.
"But we need to understand that it is not likely that we will come up with any other solution that maximises value. Maybe most farmers don't see this as a priority."
The board's job was to put other options in front of shareholders and their associated trade offs, but 75 per cent of farmers had to support any option.
While Fonterra was New Zealand's largest company, and was the world's largest dairy exporter, the group accounted for just 2 per cent of the world's milk production.
Fonterra had to grow to capitalise on the world's large and increasing appetite for dairy products, and to prevent being marginalised by competition, he said.
Fonterra could be collecting up to 1.8 billion kilograms of milksolids in New Zealand a year in 15 to 20 years' time, up from 1.2 billion now. That milk could come from around 4000 farms with herd sizes of over 1000 cows, he said.
The company was increasingly focusing on its ingredients business, which would also require investment.
The co-operative's nearly 1.28 billion shares - estimated to be worth $6.79 each - meant it would have a market capitalisation of $8.7 billion if floated today, compared with the $7.1 billion market cap of the largest listed company, Telecom.
Some farmers have been concerned that the outside investment would create a tension between achieving the lowest possible price milk to boost margins and dividends, and their own ambition to receive the highest possible milk price.
There were also concerns that the co-operative's directors could dilute their initial 65 per cent stake in the listed subsidiary to just above 50 per cent, without further consulting farmers.
- NZPA
