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Farmers loathe to sell into Fonterra fund

Only 260 of Fonterra's 10,500 farmer shareholders have offered their shares for the dairy co-operative's investment fund.

Former Federated Farmers dairy chairman Lachlan McKenzie says the lack of interest shows most farmers believe what opponents of "trading among farmers" have said all along, "that they'd be absolutely bloody stupid" to sell their economic rights.

Fonterra confirmed this afternoon 260 farmers have offered to sell the economic rights to 5.5 million shares into the shareholders fund.

"A number of them are likely to wait and see how the units trade before deciding to sell economic rights of some of their shares into the fund," Fonterra chief executive Theo Spierings says in a statement.

That leaves Fonterra to issue the majority of the units – with the final number depending on the unit price, which will be decided early next week after the bookbuild and allocation.

The dairy giant wants to raise $500 million, with oversubscriptions of up to $25 million.

Fonterra chief financial officer Jonathan Mason says the issue of shares by Fonterra will affect the co-operative's earnings per share by about one cent.

Despite those assurances, Mr McKenzie – who farms near Lake Rotorua – told NBR ONLINE farmers remain fearful of a dilution to their return.

"We've been saying all along that farmers would be absolutely bloody stupid to sell down their company and that's shown there are very few farmers that are so financially stressed they have to sell down shares.

"It shows the idiocy of TAF right from the outset."

Fonterra says 2500 people have applied for units under the Friends of Fonterra scheme, including almost 900 farmer shareholders, almost 200 sharemilkers, about 70 retired farmers and more than 1300 Fonterra staff.

A further 260 Australian dairy farmer suppliers have also applied. 

The fund's broking firm offer, which closed earlier this week, proved popular and Fonterra has been on a global roadshow spruiking the fund.

However, not everyone is intoxicated by the chance for investors to get exposure to the dairy industry, with research firm Morningstar warning investors to steer clear until trading starts.

More by David Williams

Comments and questions

I have been a dairy farmer for a smidgen over 30 years and I only know 1 dairy farmer who supports TAF. Van der heyden is despised by probably a majority of dairy farmers at this point in time for inflicting this over-complicated bullsh*t on the owners of Fonterra. He found a loophole and was able to get a constitutional change through with only 66% support ,when it's 75% we all buy in to. Redemption risk should have been the main focus rather than setting the framework to open up Fonterra to non-supplier ownership .

This is what happens when you let those in pointy shoes and pink checked shirts run farms from Ponsonby cafes.

The quickest way to get out of this mess is to vote out the architect of this nonsense. John Wilson needs to go.

With such high demand through the brokerage firms and under the Friends of Fonterra scheme no wonder so few farmer shareholders are looking to sell. They clearly know these will be a "hot commodity" when trading starts.

Never mind : dairy farmers who have already left the sinking ship will find this enormously entertaining.

The prospect of a drought, a falling payout, an appreciating NZ$, Horizon's "ONE PLAN" (to rule them all), and the TAF debacle, not to mention the Wilson/van der Heyden mess, all make for an entertaining summer.
All that is needed to complete the picture is flooding in the Autumn.

These panel of wise men who designed this over complicated mess have fatally damaged Fonterra.
No sellers and a global mountain of buyers will equate to a rapidly appreciating unit price.
This was all created to finish 'redemption risk'. Perversely, they have replaced this risk with future supplier flight.
Which farmer won't exit when the unit price reaches $12.

Easily fixed by declaring that the "Added -Value" (dividend) is close to zero, thus maximising the milk payment to farmers.
In la-la land such things are possible.
Cripes, another pig just went past FB's window.

Wonder how many of those farmers are doing so voluntarily vs. the bank manager telling them to sell these shares!

Nestlé div yield =3.28%
Fonterra divi 34cents
Takes Fonterra price to $10.32
No wonder so many Fonterra staff applied for shares !!!!

Perhaps the 20000 fonterra staff and 2000 [Est] suppliers unshared in Aussie could have handled redemption risk. Nothing like keeping it in the family.