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Fonterra only needs bare majority to pass TAF O'Connor

Friday 1st June 2012

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Fonterra can implement its contentious Trading Among Farmers scheme on a simple majority vote by farmer shareholders, even if they reject constitutional amendments requiring 75 percent support, says Labour Party agriculture spokesman Damien O'Connor.

He was responding to reports that a special shareholders' meeting on June 25 requires a 75 percent super-majority to allow TAF to go ahead. Instead, the constitutional amendments covering a suite of safeguards for farmers' interests could be lost, but TAF still be implemented on a simple majority vote on the first of the two resolutions the board is recommending.

However, Fonterra chairman Henry van der Heyden is adamant the board would not go ahead with the scheme if there was not a "clear mandate" on the first, bare majority resolution.

"If it's 50.1 percent, we won't be going ahead," van der Heyden told a media briefing in Auckland.

However, O'Connor said approval for resolution one on a simple majority and rejection of the second resolution, requiring 75 percent support, would simply mean Fonterra could implement TAF "in a more dangerous form."

Van der Heyden conceded to BusinessDesk that "from a legal perspective", O'Connor's point is "correct", but such an outcome would "split the co-op" and could never be pursued in practice.

O'Connor represents a view among some farmer shareholders that the TAF scheme is a prelude to opening up Fonterra to direct investment by non-farmers. They fear TAF is a first step to broader investor participation by getting farmers comfortable with trading in non-voting, dividend-bearing securities linked to Fonterra's performance.

Van der Heyden has insisted the TAF move is about no more than creating "permanent capital" to shield New Zealand's largest company from redemption risk that occurs when, during bad seasons, farmers can seek to redeem their shares in exchange for cash, upsetting capital management plans.

However, he said the board wouldn't "push the button on TAF without a clear mandate" and it was difficult to envisage the first resolution supporting TAF being passed while the second resolution, containing elements intended to guarantee farmer control, was lost.

"I can't think the board would implement TAF" if that happened, he said.

The Fonterra board would inevitably only be in a position to make a judgment on whether to proceed with the TAF initiative once it had seen the levels of support from farmers for both resolutions.

Van der Heyden indicated that of the 35 members of the watchdog Fonterra Shareholders' Council, only four were now opposing TAF.

Of the 48 people leading Fonterra - 13 board members and 35 shareholders' council members - "I've got at least 44 out of 48 driving it and understanding it and who will be out there standing side by side" leading up to the June 25 vote.

As all held their positions by election, "I have a high degree of confidence that farmers will be supportive," van der Heyden said.

Shareholders' Council president Ian Brown told the media briefing: "I wouldn't say there's a silent majority in support, but there is a silent majority of farmers who are waiting and watching carefully".

The 10,500 Fonterra farmers have begun receiving voting packs this week and will be attending meetings around the country to discuss the proposal, which has attracted enough high profile criticism to prompt the board to renew the initial mandate for TAF, achieved two years ago.

However, O'Connor said the Fonterra board was conducting a "smoke and mirrors" exercise.

"I'm disappointed that a simple majority will determine whether or not TAF goes ahead or not," he told BusinessDesk.

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