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Fonterra farmers fork out $270.5mill for new shares

Monday 25th January 2010

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Farmers have rallied behind Fonterra’s new equity rules, allowing them to subscribe for up to 120% of their milk production, buying 60 million new shares for $270.7 million.

About one third of Fonterra’s 10,500 farmers took advantage of last year’s changes to capital structure to buy shares at $4.52 apiece before the application period ended last week, the cooperative said.

The changes to capital structure are the first step in Fonterra’s strategy to end the ebbs and flows of equity it was forced to redeem or issue as farmers’ milk output changes year by year. The outflow amounted to $742 million in redemptions after the 2007/2008 drought.

The more challenging next step is to propose making the shares tradable among farmers and eventually inviting other investors onto the register.

“As drought is lowering milk production in some regions, a significant number of our farmers may end the season with dry shares in excess of their production,” chairman Henry van der Heyden said. “They will now have an incentive to hold onto these shares as they will be eligible for dividends paid on all of the shares they hold.”

Almost 90% of Fonterra’s farmer-shareholders voted for the change in November, agreeing to an effective freeze on the so-called Fair Value Share price at $4.52. Fonterra changed the way it values the shares to recognise they can’t be freely traded and will hold the price at current levels until the ‘restricted market’ price catches up.

Last month, Fonterra released a valuation of the shares on a restricted market basis of $3.83 apiece. Van der Heyden said Fonterra didn’t have a set target for raising capital during the application period.

Fonterra previously said it could raise up to $900 million over time.

Farmers will have another opportunity to adjust their shareholdings in mid 2010.

 

Businesswire.co.nz



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