Tuesday, December 5, 2023

Know your own Fonterra share flexibility range

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Flexible Shareholding to be implemented on March 28.
Farmers will get a measurement statement in June and then will have until December 1 to comply with the new standard for the 2023-24 season.
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Fonterra’s farmers will soon receive their first measurement statement of shareholding status under the new Flexible Shareholding capital structure, but they are not required to do anything in the meantime.

Compliance with the share standard was suspended for two years while the new capital structure was devised, proposed and agreed upon.

Flexible Shareholding is to be implemented on March 28 after lengthy consultation and dairy industry regulatory changes by the government.

Farmers will get another measurement statement in June and then will have until December 1 to comply with the new standard for the 2023-24 season.

So the first measurement statement will be advisory only, showing farmers where they sit in relation to the minimum holding of 33% of milk supply and the maximum holding of four times milk supply.

They do not need to do anything to be compliant during the remainder of the 2022-23 season.

Compliance is not expected to be an onerous or urgent action for the vast majority of existing shareholders, especially owner-operators, because the flexibility span is so wide.

A farm with the average annual milk production of 150,000 kg milksolids and fully shared up under the old one-for-one compliance standard could sell down 100,000 shares or buy 450,000 shares under the new constitutional rules.

Fonterra foreshadowed the first measurement statement in its interim results and Flexible Shareholding releases on March 16 and was asked for clarification.

“We have decided that it would be beneficial for farmers to get a measurement statement shortly after the implementation date to show from the outset what Flexible Shareholding means for them.

“While some may have found it difficult to meet their requirements under the existing capital structure, our intention of introducing greater flexibility in the level of investment required is to make it easier for existing farmers to remain with the co-op and for new farmers to join.

“This supports Fonterra’s strategy by helping to maintain a sustainable milk supply, protecting farmer ownership and control, and supporting a stable balance sheet.​​”

Up to two-thirds of the existing 1.6 billion supply shares will now be surplus to the minimum holdings, and therefore available for trading on the farmers-only Fonterra Shareholders Market (FSM) on the New Zealand stock exchange.

This is the big unknown of Flexible Shareholding and its much-reduced minimum holding in terms of market liquidity, or the ability of individuals to readily buy and sell shares.

However, the prospect of a 50c-a-share capital return and 33c dividend in October should convince many farmers to sit on their surplus shares for the time being.

The co-op has invested in transitional support with a $300 million buy-back programme to operate for 11 weeks between March 28 and June 9.

The maximum share purchase is 75 million shares, less than 5% of the total shares issued.

Fonterra has made available options for share trading, including a do-it-yourself trading account, investment as you earn, delegated trading and use of a registered broker.

It could also use enforced compliance trading to purchase shares on behalf of a non-compliant farmer up to the minimum holding.

New suppliers, sharemilkers and contract milkers have extended share-up options available and exiting farmers five to 15 years to sell down.

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