KEY POINTS:
The Government wants Fonterra to retain a New Zealand home base and majority ownership - and is prepared to change dairy sector laws to enforce it, Fonterra executives say.
The requirement for majority NZ ownership will apply even if in a decade or two the cooperative's own stake in the listed company falls as low as 35 per cent, executives told a Christchurch briefing.
The Government has already indicated it will promote law changes requiring Fonterra to maintain its headquarters in New Zealand, and to have its chairman, chief executive and chief financial officer live in the country.
It will also block anybody other than NZ dairy farmers being shareholders in the cooperative, and block any shareholder other than the Fonterra farmer cooperative from holding more than a 10 per cent stake in the subsidiary company when it is listed on the stock exchange.
Fonterra expects to rely on the Commerce Commission to police any unlawful moves by major stakeholders acting in concert against the cooperative's control of its subsidiary.
And the Government will require 50.1 per cent of the company's shares to be held by New Zealanders.
Fonterra make similar requirements in the company's constitution, so that directors will require 75 per cent farmer approval to be able to dilute the cooperative's initial 65 per cent stake in its subsidiary to less than 50.1 per cent.
When this happens, another law change will mean the cooperative's stake cannot drop below 35 per cent - a level executives say will be sufficient to retain control, as long as there is a 10 per cent cap on individual shareholdings.
"We are unlikely to get close to 50.1 per cent for at least 10 years," Fonterra chairman Henry van der Heyden said.
He said the dilution might occur because the cooperative declined to take up a share offer and if it happened it would be because the company had been so successful farmers should be celebrating.
"The most likely scenario for when this will occur will be when Fonterra is looking to raise funds to take advantage of a strategic growth opportunity," he said.
And there might be options other than diluting the farmers' stake: "A few years down the track ... the market would be more accepting of non-voting shares".
"There are other options, but they are best talked about in smaller director meetings," Mr van der Heyden said.
He warned against putting excessive controls on the listed company to "legislate from the grave".
"The board does not believe it is appropriate for us to put handcuffs on future generations.
"Our farmers need to reflect on this, because if we put excessive controls in place, we will destroy value ... the market will devalue our shares".
A cornerstone "cooperative share" in Fonterra's constitution would ensure cooperative members always had the right to have all of their milk collected by the listed company, and the company would be required to maintain adequate capacity in NZ to process all milk.
Fonterra should not compromise on its business strategy, and would not trade away farmer control, but saw ownership as a place for flexibility.
"Yes, it lets others share in Fonterra's earnings, but before they can do this they have to provide capital," Mr van der Heyden said.
This capital could be used to boost earnings: "While it means Fonterra will have a smaller piece of the pie, the pie itself should be bigger."
- NZPA
