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 co-op’s share price has dropped to $2.29/share. It was trading at $3.15 just three months ago.
Fonterra chairman Peter McBride wrote to shareholders today acknowledging farmer concern around the plummeting share price.
“Since we started consulting on our capital structure review, liquidity in the Fonterra Shareholders Market has been low, and we know there is concern about the decline in our share price over recent weeks and the impact this is having on your balance sheets,” he told farmers.
The Fonterra Shareholders' Market is a private market on which only Fonterra farmer shareholders, Fonterra and a specially appointed market maker are allowed to trade Fonterra shares. The FSM forms part of Trading Among Farmers (TAF).
McBride notes that one of the factors impacting liquidity and recent share prices may be the fact that share compliance obligations have been on hold for the last year.
“I want to remind you that even though the share compliance obligations are on hold, you can, if you wish, still buy or sell shares within your current minimum and maximum shareholding requirements - which is 1x – 2x your three-season average milk supply.”
He says the board has also been considering additional options to support liquidity in the FSM.
“As set out in the capital structure consultation and voting documents last year, we will be putting in place additional arrangements to support liquidity in the FSM when we transition to the new flexible shareholding structure, including through arrangements with one or more market-makers.
“While those arrangements are still being worked on, Fonterra will on an interim basis be providing additional financial support to the current registered volume provider to more actively support liquidity in the FSM.”
