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.
An annual dividend of 50c/share, topped up by a 50c/share capital return in October, took the total cash distribution to $1/unit for the 2023 financial year.
Fonterra Shareholders Fund (FSF) Mary Jane (MJ) Daly told its recent annual meeting she was under no illusion that the historical performance of the fund has not been satisfactory for unit holders.
"However, it is pleasing to see Fonterra's continued focus on its strategy is delivering value, and this has been reflected in the total shareholder return since the last annual meeting in November 2022," she says.
FSF unit holders enjoyed a 36.5% return, compared to 23.6% return for Fonterra shareholders.
In 2022 and 2021, Fonterra unit holders received total dividend of 20c respectively. However, in 2019, Fonterra made a loss of $605 million and paid no dividend. The following year it paid 5c in dividend.
Fonterra units have had a rollercoaster ride on NZX. Over the past two years, it peaked at $3.85 in December 2021 before plunging to $2.75 four months later. Three months ago, the unit price again topped $3.85 before dropping to $3.15 last week. Unit holders get a dividend based on the co-op's value-added business but have no voting rights. Daly says the fund board has seen several positive steps by Fonterra over the past 12 months, "that demonstrated the greater alignment between unit holders and shareholders' interests under Fonterra's new flexible shareholding capital structure".
This includes Fonterra's transparency on its resource allocation framework, focusing on disciplined allocation of milk and financial resources, and senior management being aligned to the delivery of value to shareholders and unit holders.
Fonterra chair Peter McBride told the meeting that the co-op's flexible shareholding capital structure has been in place since March this year and is working broadly as expected.
He noted the new structure was designed to give all shareholders a degree of choice with their shareholding, rather than the old model which was one of compulsion.
"With farmers now having the flexibility to, at the top end, hold up to four times their milk supply, or at the bottom end hold as little as the equivalent of 33% of their milk supply, there is a significant level of discretion in their investment choices - akin to the choice you have as unit holders."
McBride noted that the number of discretionary shares in the co-op has increased from around 250 million under the previous Trading Among Farmers structure, to 1.2 billion discretionary shares under the new structure.
