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.
He believes uncertainty associated with getting approval from the Government has impacted the share and unit prices.
Last month, Parliament approved legislation changing the Dairy Industry Restructuring Act (DIRA), paving the way for Fonterra to launch the new capital structure. The Governments’ green light came a year after Fonterra shareholders had voted for the change.
The co-operative has signalled that it intends to implement it in March 2023.
The new capital structure reduces the number of shares farmers need to hold to join the company from one share per kgMS, to one share per 3 kgMS. It would also allow different types of farmers to hold shares in the company and cap the size of the associated shareholders’ fund to 10% of all shares on issue.
Despite Fonterra’s objections, the Government has also changed the composition of the milk price panel, which helps set the farmgate milk price. The panel will have an independent chair and face greater scrutiny from the Commerce Commission.
Fonterra’s share price has dropped from $5.15/ share in March last year to $2.59/share last week.
Units offered by Fonterra Shareholders Fund have followed a similar pattern. The unit price has dropped from $5.15 to $3.06.
“In our view, the uncertainty associated with the implementation of capital structure changes has been an overhang on the Fonterra share and unit prices and we believe orderly implementation should be a positive catalyst for Fonterra in 2023,” Dekker says.
He believes Fonterra’s investment case will be influenced by a broader set of dynamics.
“We view Fonterra’s approach on the following, somewhat related, issues as important as it progresses its 2030 strategy and moves into the new capital structure environment where farmers have much more flexibility on ownership levels.” He also believes Fonterra will need to be disciplined on capital investments.
Fonterra chairman Peter McBride says the passing of legislation provides farmer shareholders “the clarity they’ve been wanting”.
