Fonterra has hit out at a statement made by rival Open Country Cheese claiming the dairy giant's capital structure plans would reduce competition.
Yesterday, Open Country Cheese chairman Laurie Margrain said Fonterra’s planned stage three of its capital restructuring process could lock farmers into the co-operative.
He said if Fonterra was no longer required to accept supply when request or to redeem the shares ot hsoe who wish to exit, then farmers would become economically locked in.
Currently, farmers can redeem their shares at the current fair value price set by an independent assessor.
Fonterra chairman Sir Henry van der Heyden said there would always be open entry and exit for farmers.
“It is inconceivable to think that anyone would suggest otherwise. It is simply out of the question. Our farmers will always be able to come and go as they please and be able to buy and sell their shares,” Sir Henry said.
“What Open Country Dairy is really worried about is Fonterra strengthening its financial position so that it can be more competitive in the global food market and improve returns for Fonterra farmers in future years.”
The tit-for-tat response was a reflection of a lack of information about Fonterra’s stage three plans.
While stage three would involve creating a market and platform for share trading among the co-op’s farmer shareholders, details have yet to be revealed.
After the first two stages if Fonterra’s capital structure proposal were agreed to, shareholding farmers can now buy shares up to 120% of their expected milk production – based on a one share for every kilogram of milksolids.
If farmers agree to the concept, they would be forced to buy and sell shares on the restrict market created by the company.
While the share price would be artificially maintained at $5.10 – the current fair value share price – until the restrict market share value came into line, the real value would be determined by the market.
If farmers bought at a high price and then demand for shares reduced those who wanted to sell would likely have to at a lower price.
Then, if environmental conditions changed and milk production fell, then farmers would have shares in excess of 120%.
However, NBR understands that one-off events, such as drought affecting production, would be accommodated in the stage three proposal and farmers would not be forced to sell in the short term.
Tue, 23 Feb 2010