Fonterra has signalled a proposed tax-free capital return of 50c a share in October, partially returning to farmers the capital loss resulting from the halving of share prices over the past two years.
The $800 million capital return will come from the sale of Chilean subsidiary Soprole, yet to be finalised.
In May 2021, when Fonterra began a long process to change the share structure, co-operative supply shares were worth $5. They fell to $2.60 before the latest announcement.
For farmers with the average annual milk production and 150,000 shares, the decline in value has been $360,000.
Now Fonterra proposes to give back $75,000 per average farm.
It has also forecast normalised earnings of 55 to 75c a share this financial year, which may deliver an annual dividend of as much as 30c a share, or $45,000 a farm.
An interim dividend of 10c will be paid in mid-April.
Meantime the Flexible Shareholding implementation date is March 28, when existing shareholdings will effectively treble in size relative to farm milk production.
That will create a huge volume of excess or dry shares, which farmers may want to trade.
To assist sharemarket liquidity, Fonterra has allocated up to $300m for a transitional buyback of shares and a longer term market maker.
The buy-back will begin on March 28 and run for 11 weeks until June 9, and is capped at 75 million shares, about 4% of Fonterra’s total shareholding.
Implementation of the capital return will require a Scheme of Arrangement to be voted on by shareholders and approval of the High Court, which is a common process.
The sale of Soprole remains subject to satisfaction of conditions previously announced.
Fonterra has decided to retain full ownership of its Australian businesses and therefore the $800m capital return will be less than the $1 billion originally announced.
The capital return also applies to units in the Fonterra Shareholders Fund, where outside investors and farmers with previously converted dry shares are locked in.
The FSF unit price rose 15c immediately after the capital return announcement, to $3.20.
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