No new TAF vote

However, Fonterra management is looking at options where share ownership will stay in the hands of shareholders. Under TAF, shares sold by farmers will be owned by a custodian.

Fonterra chairman Henry van der Heyden says the board will stick to the mandate given to it by 90% of farmers who voted on supporting TAF (trading among farmers) last year.

"As long as we can deliver on that mandate, there is no need to go out to shareholders for another vote," he says.

Van der Heyden faced several questions from shareholders on the scheme at last week's annual meeting in Whangarei. Most wanted to know why the board wasn't keen on another vote.

But van der Heyden says the TAF proposal includes "99% of the detail as we outlined prior to that vote". He agreed that most shareholder concerns are mainly around transfer of share ownership to a custodian.

"Some shareholders are concerned that farmers won't hold legal titles of shares they place with the Shareholders Fund," he told the meeting. "It's proposed that a custodian will hold legal title to those shares. The custodian is a 100% Fonterra-owned subsidiary. "From our perspective, ownership remains firmly with farmers because you own Fonterra. But not everyone is seeing this the same way. Let me just say that the board acknowledges these concerns."

Van der Heyden says Fonterra needs permanent share capital.

"We simply can't run Fonterra to its full potential, and achieve the best returns for farmers, with money washing in and out of the balance sheet.

"In good times, such as we've enjoyed recently, it's easy to think permanent capital is not necessary.

"It's easy to put redemption risk out of your mind when there's growing supply and a high payout. But things can always change quickly. And, as the Maui gas pipeline showed us, a nasty event may be just around the corner."

He assured shareholders 100% control and ownership will be just one of the many things that will be thoroughly reviewed by a special due diligence committee of the board.

This committee is headed by independent director John Waller. Other members are David Jackson, Nicola Shadbolt, Jim van der Poel and John Wilson.

"It's being advised by some of the country's best brains in accounting, tax, legal, financial market and co-operative issues," says van der Heyden.

Other steps in the process include amendments to DIRA, which are expected to be introduced into Parliament in the first or second quarter of next year.

Van der Heyden says once the due diligence committee gives the green light, the board will recommend to the Shareholders Council to support implementation. Before voting, the council will have undertaken its own review – which will be supported by its own advisors.

Van der Heyden says if the council votes in support, the board will then pass a formal resolution for TAF to take effect from specified dates.

"At this stage, we are tracking towards late 2012," says van der Heyden.