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Dairy Equities de-lists just as new Fonterra fund arrives

Friday 9th April 2010

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The poor timing of the Dairy Equities attempt to give non-farmers a slice of the Fonterra action was thrown into stark relief today, with the ill-fated company announcing its de-listing from the NZX, just days after Fonterra announced a vehicle with almost identical effect.

Fonterra this week unveiled plans to issue non-voting units in a new shareholders fund which would receive and distribute to investors dividend income derived from shares in the Fonterra value-added business, which farmers will be able to sell into the fund to generate short term liquidity.

Fonterra has been at pains to stress these will units confer no ownership or voting rights and are not a direct investment in Fonterra, but are intended to assist farmers by adding liquidity to the internal, cooperative members-only market for Fonterra shares, which is the primary focus of Fonterra's latest announcements.

"It's almost an identical vehicle," Dairy Equities chairman Peter Jensen told BusinessWire. "I'm not surprised that they are doing it. There's no point in being annoyed. We were just a bit ahead of our time."

A crucial difference is that Dairy Equities, launched in 2006 to give private investors exposure to Fonterra, issued NZX-listed shares, whereas the Fonterra fund will issue units, details of which have yet to emerge, including how and where they will be tradeable.

The Dairy Equities experiment foundered both because there was no clear mechanism for farmers to trade their Fonterra shares, and because plummeting dairy prices in 2007 made the Fonterra proposition fundamentally less attractive for potential investors.

As part of its wind-up process, Dairy Equities confirmed in a statement to the NZX today that it had sold its remaining Fonterra Fair Value shares to a consortium of investors put together by Craigs Investment Partners earlier this week, allowing a pay-out to Dairy Equities shareholder of 6.5 cents per share.

A further 1.5 cents in payouts is due once legal issues associated with its one remaining SWAP Agreement are settled.

It could several months for this and other wind-up activity to be completed, and there was no value in retaining the NZX listing and its associated expense, Jensen said.

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