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 proposal needs 75% support to pass.
McBride, who has spent the last few months meeting farmer shareholders throughout the country, says he has generally received positive feedback.
Following an online survey of farmer views, the co-operative started consulting with farmers in May. A revised capital structure proposal was presented to farmers in September following feedback.
McBride believes there was "quite a mood change" since the revised plan was unveiled.
“We clearly articulated our 10-year plan and our debt reduction and dividend plan,” he told Dairy News.
“That was a real important pivot for us.
“I think sentiment has moved a long way and we have been encouraged with our own polling.”
McBride admitted that the initial plan had “issues and fish hooks”.
“But we listened to our farmer shareholders and changed the proposal.”
The proposal has unanimous support of board and management. It has also received 92% support from the Fonterra Co-operative Council.
Fonterra chief executive Miles Hurrell says the co-operative’s strategy to add value to NZ milk and be a leader in sustainability and innovation depend on a sustainable supply of New Zealand milk and, in turn, a capital structure that enables this.
To achieve that, Fonterra must be an attractive option to farmers, who have a choice on where their milk goes, notes Hurrell.
“Our proposed capital structure gives all farmers a level of flexible shareholding, which is critical to supporting farmers to join or stay with our co-op.”
“We have an incredible natural product made on farms, a business supported by a talented and committed team, and an exciting opportunity to create value. It’s up to us as a co-op to work together, make the necessary changes and ensure we’re creating goodness for generations.”
Council chairman James Barron says he is confident that the final proposal gives appropriate protections.
The Changes
Main features of the capital structure proposal are:
- New minimum shareholding requirement would be set at 33% of milk supply (1 share/3kgMS), compared to the current compulsory requirement of 1 share/1 kgMS. This aims to strike a balance between providing a meaningful level of flexibility for those who need it, which is critical to maintaining a sustainable milk supply, while ensuring all farmers having some capital-backed supply.
- New maximum shareholding requirement would be set at 4x milk supply, compared to the current 2x milk supply, with the aim of striking a balance between supporting liquidity in the farmer-only market – by ensuring more capacity for farmers to buy shares from those who want to sell – while avoiding significant concentration of ownership.
- Fonterra shares would be open to sharemilkers, contract milkers and farm lessors. The co-operative hopes this recognises their connection to Fonterra, provides a pathway for future farmer owners and increases the number of potential participants in the farmer-only market by around 4000 to support liquidity.
- Exit provisions for current shareholders have been extended: up to 15 seasons initially to exit, reducing annually to 10 seasons, which would also support liquidity and give these farmers greater choice about how long they retain an investment in the co-operative.
- New entrants would have up to six seasons to achieve the 33% minimum shareholding requirement. This compares to a standard three seasons for both entry and exit under the current structure.
