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.
Speaking to Rural News yesterday van der Heyden says farmers have been given three options on the custodian holding legal title to traded shares.
Van der Heyden, who attended seven farmer meetings last week, is confident farmers will accept the co-op's preferred option. However, he says it's up to farmers to make the choice.
"At the end of the meetings I have attended, a vast majority of farmers are telling us to just get on with it."
Van der Heyden says farmers have been asked to give feedback online this month.
"We have left it up to our farmers to decide which option they prefer."
He says the mood in the meetings have been positive and turnout has been one of the biggest since the co-op's formation. However, farmers are angry with the Government's proposed changes to raw milk regulations and half the time at the meetings was spent on the issue.
Despite the outcry over DIRA, he believes farmers remain positive about TAF and he expects it to be launched in November.
The co-op is recommending a farmer-controlled trust to hold traded shares in a bid to appease shareholders, who fear losing 100% control.
In 50 shareholder meetings around the country this week, Fonterra board and management presented three options, designed to allay fears that legal title of shares placed in the Fonterra Shareholders Fund will be transferred to a custodian not in farmer control. Shares swapped among Fonterra shareholders under TAF (trading among farmers) will be placed in the fund.
Fonterra says its preferred option will give farmers "the comfort of direct control and ownership of the custodian". The preferred option includes a Farmer Trust Custodian owned by a trust controlled directly by farmer shareholders. The other options are a custodian 100% owned by Fonterra and individual farmer retaining legal title to shares they place with the fund.
Fonterra farmers were told they will collectively retain legal title to shares placed with the fund without additional layers of administration that would potentially make TAF too complicated to work effectively.
In contrast, keeping legal title with farmers carries significant downside risk because of its complexities and potential for value destruction, it says.
"For example, keeping track of share ownership in the event that a farmer shareholder passes away would become very complicated if their shares are dispersed among children and other beneficiaries to a will.
"The more complicated TAF becomes, the greater the need for detailed explanations as to why TAF needs to be so different to other investment opportunities," farmers were told.
Fonterra was forced back to the drawing board after shareholders expressed concern at legal title of shares ending up with the custodian. At its annual meeting in November, Fonterra chief executive Theo Spierings announced management was taking a fresh look at legal title to shares placed with the fund.
The co-op says the custodian approach is a straight forward solution that would achieve TAF objectives. "Let's be clear: the custodian is not a person, it's not an entity, and it's not a decision-making body that holds meetings. It is purely a mechanism to hold legal title to shares for the benefit of farmer-shareholders," it says.
Fonterra admits it did not explain the custodian as well as it should have in the past.
"But the reality is that the custodian is 100% controlled and owned by Fonterra, and Fonterra is owned by farmers. However, it's not enough for the board to be comfortable about this. Farmer shareholders need to be as well."
