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.
These are trying times for the co-op. Licking its wounds from the first-ever net loss of $196 million, the co-op is trying to win back the confidence of its frustrated shareholder base.
The biggest problem Fonterra faces is the weakened faith among shareholders. They still support the co-op and believe in its ethos, however they feel let down by its inability to deliver a decent return on their investment in land and shares.
A review of assets is underway; Beingmate is the first cab off the rank. Fonterra executives were in China recently talking to Beingmate and looking at its China Farms.
Shareholders are waiting for an announcement on Beingmate. The co-op has already taken from Beingmate the sole distribution rights to its flagship Anmum brands.
No one will be surprised if Fonterra backs out of the Beingmate deal; remember $405m has already been written off.
There is also a question mark over offshore milk pools. Fonterra shareholders aren’t fools; they’ve heard the rhetoric on offshore milk pools for example, but they can read the numbers. Sadly, right now some of the offshore milk pools are not delivering to NZ farmers.
During farmer shareholder meetings last month, the message to the co-op’s bosses was clear: fix the mess quickly.
The shareholders also expressed concerns over the co-op’s debt levels, now at high risk in an environment where the co-op is losing milk.
New chief executive Miles Hurrell has talked about a complete stocktake of where the co-op’s capital is allocated.
Farmers want to know if Fonterra is prepared to depart from existing strategy and exit loss-making investments even if Beingmate is part of China’s ‘integrated strategy’.
Farmers have given Hurrell and his team a chance to prove themselves.
When the shareholders receive voting papers this week, they will also be digesting the payout revision announced last week. They understand that the global supply and demand situation is beyond their control. What the co-op can control is its strategy and minimise loss-making assets.
Farmers firmly believe Fonterra must retain its competitiveness and that their future is a cooperative one, but not without accountability for board and management’s performance with the owners capital.
Shareholders will for the next three weeks ponder who may be the best among the five candidates to take the co-op forward.
