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 cooperative says more than 2500 people have applied to buy units under its Friends of Fonterra Offer. This is made up of:
• Nearly 900 farmer shareholders
• Nearly 200 sharemilkers
• About 70 retired farmers
• More than 1300 staff
A further 260 Australian dairy farmer suppliers had also applied for units in the fund.
Each person has applied for differing amounts of units and the number of units each applicant will ultimately receive will be confirmed after the bookbuild process is completed and the final price is announced next week.
Fonterra chief executive Theo Spierings says the result showed strong support for units among farmers and staff.
"Trading Among Farmers is all about strengthening the cooperative and providing it with permanent capital for the future – it's great to see these levels of support from our Fonterra family," he says.
"We see it as a vote of confidence in the cooperative from some of the people who know it best.
"It is another indication of the strong support we are getting from our farmers and staff for our Strategy Refresh which sets our future direction for growth."
On the Supply side, about 260 farmer shareholders had offered to sell Economic Rights of around 5.5 million Fonterra Shares into the Fonterra Shareholders' Fund.
"It is clear that we have seen limited interest from farmers at this time," says Spierings.
"We're hearing from our farmer shareholders that a number of them are likely to wait and see how the units trade before deciding to sell economic rights of some of their shares into the fund – but many are showing confidence in Fonterra by applying to buy units.
"That's one of the key features of the fund – to provide flexible options for farmer shareholders. They can use it for investment purposes – or they can free up some cash by selling economic rights of shares," says Spierings.
Chief financial officer Jonathan Mason says: "We know interest rates are low at the moment and this may mean that not all farmers are looking for alternative sources of cash.
"Circumstances may change in the future and that's why we are looking to provide further opportunities for farmers to sell Economic Rights. As indicated in the Fund Prospectus, the next opportunity could be after Fonterra's interim results for 2013 have been announced, which is likely to be in March."
As also indicated in the Fund Prospectus, Fonterra will issue enough shares to achieve the $500 million minimum fund size required under the Dairy Industry Restructuring Act (DIRA) and any oversubscriptions of up to a further $25 million. The number of shares to be issued will depend on the final price of fund units, which will be determined following the bookbuild process taking place next week.
Mason confirms the issue of Shares by Fonterra would, at the most, affect the cooperative's Earnings per Share by about one cent.
Shares issued by the cocoperative will be held by the Fonterra Farmer Custodian who will hold the Economic Rights for the Fund. Fonterra does not intend to permanently retain the resulting equity.
