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.
"The Bill will put Fonterra in a position where it can introduce Trading Among Farmers. And Trading Among Farmers will enable Fonterra to remain the national champion our farmer shareholders and New Zealand need," said van der Heyden.
"We need a stable permanent capital base to implement our refreshed business strategy that will drive returns for our shareholders, and to also protect the co-op from future shocks such as a major drought.
"At the same time, it will maintain and enhance open entry and exit – a cornerstone of the Dairy Industry Restructuring Act since it became law in 2001.
"In late June, we are going back to our shareholders for a special meeting at which we'll outline the detail of how Trading Among Farmers will operate and hold a final vote.
"Before that meeting, we need the legislation to be finalised so we know exactly what we're dealing with."
Commenting on the Bill's Milk Price oversight provisions van der Heyden said: "The bill will enshrine in legislation Fonterra's mechanism for determining the Farmgate Milk Price, which is robust, transparent, and can't be influenced.
"Our view is that the bill entrenches things we already do. It also establishes a role for the Commerce Commission in reviewing and auditing this process. We don't think this regime is necessary, but we can live with it."
Van der Heyden said although the cooperative supports most of the changes in the bill, it has identified in its submission some sections that need to be amended to ensure Trading Among Farmers can operate effectively.
The cooperative is seeking minor technical refinements to the detail of the Commerce Commission's Milk Price oversight function.
Fonterra is also seeking removal of Section 109(K) which could set up restrictions and roadblocks around some of the ways Trading Among Farmers needs to work to be successful, and could result in the Fonterra Shareholders' Market and the Fonterra Shareholders' Fund not operating in the way they need to.
Fonterra's submission shows that the proposed technical provisions lack clarity and have the potential to create levels of uncertainty that might undermine or prevent the normal operation of Trading Among Farmers.
The provisions are also unnecessary because once Trading Among Farmers is implemented, Fonterra will be subject to the full gamut of laws with which listed companies must comply. These include the Securities Markets Act, the Commerce Act, the Companies Act, the Co-operative Companies Act, the Securities Act, NZSX Listing Rules, the FSM Markets Rules, the overlay of directors' duties under company law, and the contractual obligations under the Fonterra Shareholders' Fund Trust Deed, the Fund Contract and other agreements.
Another section of the bill provides for a method of pricing Fonterra's shares, in the event that Trading Among Farmers is not launched by 31 December 2013, or it ends.
Fonterra's submission highlights that this "Fair Value Share" proposal could result in Fonterra being forced to value its shares at a price greater than what they would trade for between willing buyers and sellers.
"This sort of artificially high share price ignores that Fonterra shares can only be owned by its farmer shareholders. It would impose obligations on Fonterra's Board that would conflict with its statutory obligations under the Companies Act to determine an issue price for shares that is fair and reasonable to the Co-operative and to its farmer shareholders.
"The proposed mechanism should be removed from the Bill," said van der Heyden.
