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.
Spierings says huge time and effort had been spent to ensure Trading Among Farmers (TAF) strengthened the cooperative's capital structure and protected 100% farmer control and ownership.
"I know some people fear change but a 'no' vote on TAF doesn't mean we just go back to the status quo – things will change," Spierings says.
"We will need to go back to the drawing board to resolve redemption risk and we will also have to put on hold key projects to increase the volume and value of our dairy exports.
"We will have to come up with a Plan B to resolve redemption risk. That could mean up to two years of talking to the Government about new legislation. Given we've already spent more than three years developing TAF, this would put us in a five year holding pattern.
"Our Strategy Refresh gives us a clear path forward but we cannot implement this without a stable capital base.
"We will have to pursue fewer projects as we will need to hold back more capital because of redemption risk.
"Our competitors will take advantage of this and we will lose our window of opportunity to grow returns."
Spierings says without TAF, the Government would require Fonterra to return to a Fair Value Share instead of its current Restricted Market Value. This would mean that the share price would be closer to $5.57 than $4.52 (based on the latest independent valuation).
"This sort of higher value would mean it would cost farmers more to share up and our redemption risk will become much bigger."
For example this year, a lot of farmers will have to buy additional shares at $4.52 because of production increases. If production fell over the next couple of seasons, and we don't have TAF, farmers would end up selling those shares – at the unrestricted price. This is likely to be much higher than the price they bought them for.
If this was the case then Fonterra would have to find tens of millions of extra dollars to fund these redemptions.
"If TAF goes ahead, the Government's concerns will be satisfied – they will leave us to get on with it. With TAF, we control our own destiny," says Spierings.
