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Fonterra's special waiver for staff to sell units in $525m fund

Fonterra has given its staff a pre-Christmas waiver to sell units in its $525 million investment fund.

Fonterra employees are subject to the company's securities trading policy, which discourages buying and selling in the first six months.

However, they have been given a temporary waiver to sell until December 20.

The company says the move was prompted by staff not being "fully aware" of the policy and it wanted to avoid hardship for staff, particularly around Christmas.

It admits there is a risk staff will sell their units and take a profit.

About 1300 Fonterra staff invested in the dairy giant's new fund. 

Units in the fund (NZX: FSF) have soared since opening at $5.50, and are up 0.3% today to $6.64.

That means Fonterra employees stand to make a healthy profit if they sell.

New Zealand Shareholders Association chairman John Hawkins says it would be "astonishing" if the company has not been clear enough with staff about its securities trading policy.

"It's incumbent on the company to get that right."

Fonterra says it did not provide loans for people to participate in the unit offer.

Mr Hawkins questioned the financial hardship line if people had stumped up cash for the fully-priced units. 

"I find that a bit strange. It sounds a bit like management double-speak to me."

As reported by NBR ONLINE in September, almost 4000 Fonterra employees earned more than $100,000 in the last financial year, and more than 20 were paid $1 million.

Staff 'not fully aware'

Fonterra's general counsel David Matthews says a conditional temporary waiver allowing staff to sell units has been allowed until December 20.

"Because some staff were not fully aware of the policy and it may have caused some financial hardship, we have allowed a temporary waiver," he says in a statement emailed to NBR ONLINE.

The waiver was applied by himself and management, after consulting external legal advisers.

Mr Matthews says there is a risk staff will simply sell and take the profit.

"The key reason behind the temporary waiver was to ensure that the policy is fully understood and to avoid hardship for staff, particularly around Christmas.

"The policy still requires relevant staff member to apply to me for consent to trade so there is an appropriate process in place.

"Each person's choice about how they manage their investment will be personal, but anecdotally we have heard that many will hold onto the units as their opportunity to have an investment in their cooperative."

Conditions attached to the waiver include:

  • A staff member does not hold any "material information" as defined in the policy.
  • A staff member is not a "restricted person" as defined in the policy – eg, a member of the senior management team.
  • Before selling any units a staff member must complete a consent to trade form and receive Mr Matthews' approval that he/she can sell.

After December 20, if a Fonterra employee wants to sell their units before June 2013 they will need Mr Matthews' approval and prove there are "exceptional" circumstances.

Earlier today, the dairy giant credited a balance sheet strengthened by its new fund as a reason for increasing its forecasted milk payout.

dwilliams@nbr.co.nz

More by David Williams

Comments and questions
8

Priceless

Pretty shocking they forgot to communicate to staff of their share policy before the IPO - an event big enough to warrant a special mention. Or has the 'existing' policy only been created now.

A stuff-up all the same.

So staff get super special deals + get to stag the shares.
One has to assume Fonterra will let IRD know about all of these clearly taxable hardship circumstances where staff profit.
Must be pure coincidence staff have bumped up payout forecast on same day.
Will they still be friends of Fonterra or sell-outs?

There only two possible scenarios;
1. Staff wanted to stag a ridiculously underpriced issue.
2. They thought they would be scaled down and got fully allocated=financial hardship

If Fonterra permit this scandal, hopefully the IRD will tax the culprits as traders

Where was the advice in all this and did these employees actually seek any advice? Did they read the offer documents ?
While I'm not an expert in this area, I am surprised that this can happen and perhaps someone from NZX might comment.
Surely, the employees knew how many shares they were applying for and how much that would then cost? It's not too hard to figure out .
Imagine this as a scaled-down dry run for when the SOEs are launched to "mum and dad" investors who may have never before invested into the sharemarket and potentially there will be many more investors who will not understand what they are buying.
My advice is for these people to actually take advice.

Maybe NZ Cricket needs to pay more of its staff over $1 million per annum so that it can improve its level of communication to this level...

Will Fonterra publish a list of their staff who sold their shares by December 20? And what the profit was? IRD should take an interest as well.

Looks suspiciously like someone senior sold out early

PML on financial hardship play - bet it made the farmers feel good too