What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
A new preferred option will be presented to farmers in late September and taken to a farmer vote at its annual meeting to be held in December.
Chairman Peter McBride says the board is considering a number of changes as it thinks about what a final proposal could look like.
These include:
- Setting the minimum shareholding requirement at 33% of milk supply (or 1 share/3 kgMS), rather than 25% (or 1 share/4 kgMS) as originally set out in the preferred option.
- Enabling sharemilkers and contract milkers to hold shares if the co-op moved permanently to a farmer-only market.
- Extending the entry timeframe from five to six years.
- Extending exit timeframes for all farmer owners on the date of the vote to up to 10 or 15 years, including those who have already ceased in the past few seasons but who still hold shares.
- Reviewing the market maker role and looking further at how potential share buy-back options might support liquidity in a farmer-only market.
- Maintaining the share maximum at 4x milk supply to also help support liquidity.
“We have also reconsidered voting rights in light of some feedback and at this stage our preference is for voting to continue to follow share-backed supply as it currently does,” adds McBride.
Consultation has been extensive to date, starting with the initial communication on May 6 when Consultation Booklet was sent to every farmer owner. Since then:
- Fonterra directors have held 90 farmer meetings, attended events such as the My Connect conference and National Fielddays as well as leading 7 online webinars and speaking with many farmers directly.
- Over 5,000 farmershave directly engaged through feedback channels, in addition to discussing the options with each other.
- Members of Fonterra’s board and management have also been talking with other groups such as the Co-operative Council (formerly the Shareholders’ Council), the Fonterra Shareholders’ Fund, the Government, major banks and rural professionals. This engagement will continue as the consultation progresses.
“We would like to thank our farmer owners for getting involved and approaching the consultation with open minds,” says McBride.
“We also want to acknowledge the uncertainty that comes along with us considering changes to our capital structure and the significant challenges that it’s creating for some farmers. The best way to give certainty is to ensure we have a full discussion as a co-op and get to a quality outcome.
“The Board maintains its belief that, in a flat or potentially declining milk environment, making changes early will put us in the best position to provide farmers with more flexibility while protecting farmer ownership and strengthening our co-op’s financial sustainability.”
