In less than six months the share price has risen from $4.52 (pegged) to $7.92, which is also a 44% increase over the Fonterra Shareholders Fund (FSF) unit listing price on November 30 of $5.50.
Because few farmers elected to sell economic rights into the FSF before listing, Fonterra was forced to create 90 million new shares to back the tradable investment units, which have since caused a flurry of non-farmer activity on the stock exchange and the run up in price.
Fonterra now faces the prospect of paying $2.42 a share premium over its own listing price to make good the latest supply offer, for which numbers will be declared on Thursday.
Many farmers will have “spare” shares after a recent one-for-40 bonus issue, a big share-up after the record milk production in the 2011-12 season, followed by a reduced, drought-affected season, and the introduction of the rolling three-year average share standard.
Farmers are also entitled to sell the economic rights of up to 25% of their minimum required shares to back their milk production.
By taking advantage of the maximum rights sell-down entitlement at the new offer price of $7.92, an average-sized farm could free $250,000 or more of share capital for other purposes.
The “final price” of $7.92 was determined by reference to the trading price of units and shares over the past two weeks. Farmers have until 5pm on May 23 to indicate how many rights they want to sell.
Fonterra could, conceivably, transfer all the new shares it issued when the FSF was created if the supply offer is well supported by its farmers.
Related story: Fonterra announces supply offer final price