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.
Agriculture Minister Damien O'Connor has told the co-operative that the capital structure, currently before farmers for a vote, isn't consistent with the Government's policy objectives.
In a letter to McBride, O'Connor stated that at this stage it would be difficult for the Government to support regulatory changes needed to facilitate the proposals.
Fonterra farmers received the new capital structure proposal last week and will vote on it at a special general meeting in Invercargill on December 9. A copy of O'Connor's letter was also sent to all farmer shareholders.
McBride told Dairy News that he was "happy" to receive the letter as it shows the Government's willingness to work with the co-operative on a new capital structure.
McBride agreed that some might take the letter literally while others will think it is supportive of the co-operative.
"I was happy to receive the letter," he says.
"It's clear that we share the same objective: to see a sustainable, efficient, high performing and innovative Fonterra.
"Our objectives are aligned."
McBride noted that O'Connor was "really supportive of co-operatives".
"The important point in the letter is that the Government will work with us."
The new capital structure will have a flexible shareholding structure, allowing all farmers more flexibility around increasing or decreasing their shareholding during their farming career.
It requires 75% support from voting shareholders.
It will also require Parliament to approve changes to the Dairy Industry Restructuring Act (DIRA).
O'Connor claims the current proposals "envisage a legislative change to remove key mechanisms that risk weakening performance incentives on Fonterra".
"Without alternative measures, I am not yet assured that these proposals would deliver the best long-term outcomes for farmers or the dairy sector as a whole.
"I am particularly concerned that the current proposals would create a higher risk of diverging shareholder interests inside the co-operative, between farmers with minimum shareholdings for supply only and those with larger shareholdings held for investment purposes.
"My concern is that this could result in competing shareholder priorities relating to Fonterra's future direction and strategy."
McBride says he can understand why the Government is not at this stage in a position to support DIRA changes to facilitate the proposal.
"We understand the Government is looking for further assurance that our proposal supports contestability, drives performance and innovation, and protects alignment of shareholder interests," he says.
"I have spoken to the minister since receiving his letter and remain confident that we can provide the Government with the necessary assurances and work together to find a regulatory framework that supports the flexible shareholding structure.
“One of the considerations will be a strong mandate for change from the co-op’s farmers.”
