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.
Former chairman John Wilson and soon to be ex-chief executive Theo Spierings were still running the show.
There was growing unease among shareholders about some investments going sour in China. And some Government ministers -- especially in New Zealand First -- were openly calling for heads to roll at the co-op.
On July 27 came the first bombshell: chairman John Wilson stepped down due to a major health scare and Wairarapa farmer John Monaghan took over.
Two weeks later came the second bombshell: Fonterra said it would reduce the 2017-18 farmgate milk price by 5c/kgMS to a still-respectable $6.70/kgMS. Nonetheless farmers were stunned to learn they would get less for their milk sent to Fonterra in the last season ending May 31, 2018.
The co-op’s balance sheet was under pressure due to a $400m write-down in the value of the Chinese company Beingmate Baby and Food and a $183m compensation payment to Danone.
Fonterra had three options: claw back 5c/kgMS already paid to farmer shareholders, borrow more money or reduce the final payout for the last season. It went for the easiest option.
The final ‘wash-up’ payment in October for the 2017-18 season will see farmers get 5c/kgMS less than they were promised in May this year.
Farmers have been wondering how Fonterra’s management had got it so wrong. Until the very end of their tenure, both Wilson and Spierings had professed faith in the Beingmate venture. Whether Fonterra bleeds more money in this disastrous investment will be known on September 13 when the annual results are announced.
New chairman John Monaghan saw it was time to act swiftly. Last week, Miles Hurrell took over as interim chief executive and Spierings will be gone come September 1.
Hurrell is promising a clearer, more upfront and honest approach in dealings with farmer shareholders. They can expect him to have a higher media profile in NZ than did Spierings, who could never understand why journalists were so obsessed with a dairy company.
A new era of transparent and honest communication by the co-op bosses will sooth many shareholders and politicians.
