Rural Equities will switch about one-third of its milk supply to Synlait Milk from Fonterra, allowing the farming group controlled by the Cushing family to shed about half its shares in New Zealand's biggest company.
Rural Equities, whose shares trade on the Unlisted platform, says after a review of options for processing milk from its six dairy properties that its two farms in Canterbury will supply Synlait in the season that started on June 1.
The remaining four farms – in Taranaki, Manawatu and Southland – will continue to supply Fonterra, it says in a statement. Rural Equities produced about 1.56 million kilograms of milk solids last year and the volume diverted to Synlait is about one-third of production.
The farming group divested 789,262 Fonterra shares by switching some supply to Synlait and participating in Fonterra's recent shareholders' supply offer, it says. The sale of shares at an average price above $7.50 realised about $6 million. The company can supply Synlait without holding Synlait shares.
Synlait is in the process of ramping up production and yesterday released a share sale prospectus that aims to raise $75 million to build new plant and repay debt. Its 2014 revenue is forecast to jump 23 percent to $524 million, according to the prospectus.
Shares of Rural Equities last traded at $3.45, valuing the company at about $124 million, up from $3.24 a year ago. The company has been buying back shares from investors.
It has also agreed to sell its Blairmore sheep, beef and deer grazing farm in Central Otago to a neighbouring farmer for $3.45 million, or about 7 percent above its June 2012 valuation.
Rural Equities owns 27 farms, of which nine are directly managed and the rest leased out.