But Keith Woodward, honorary professor of agri-food systems at Lincoln University, said he saw no prospect of Fonterra being taken over by a Chinese company.
“There would be no interest from either side,” he said.
“What the Chinese companies want is secure supply from a trusted partner. They see no need to dominate or take over New Zealand’s dairy industry.”
But he did believe a small number of additional Chinese companies might build modest investment stakes in NZ of, say, 100 million to 1 billion litres a year.
The prospect of Fonterra’s business and assets being shifted into a venture half-owned by a Chinese company was hinted at in a recent newspaper article by Rob Hamlin, a marketing lecturer at Otago University.
The article focused on corporate-governance aspects of the scheme whereby Shanghai Maling will invest $261m in cash for a 50% share of SFF’s business, in partnership with the existing SFF co-operative.
The investment will provide significant financial capability to accelerate SFF’s global Plate to Pasture strategy. Moreover, the extensive retail and distribution assets of the state-owned Shanghai Maling and the broader Bright Food Group in China is expected to establish Silver Fern Farms as the premium red meat brand in the fast-growing Chinese protein market.
An overwhelming 82% of shareholders approved establishing the partnership.
Hamlin, nevertheless, raised questions about the deal and concerns about the adequacy of the laws on the role shareholders have to protect their interests
“Such is the attractiveness of the SFF outcome for its architects that the same well-choreographed dance may well be played again with other asset-rich groups in this country,” he wrote in the Otago Daily Times.
“While SFF may be a dead rubber, Fonterra, for example, most emphatically is not.”
SFF chief executive Dean Hamilton, responding to Hamlin’s critique in a follow-up article, said the board had legal and fiduciary obligations to the company.
Under the company’s constitution and under the Companies Act there was no legal requirement to obtain shareholder approval, he pointed out. The board, nevertheless, held the strong view that requiring a vote was acting in the best interests of the company.
But if this was correct, Hamlin said when asked to elaborate on his mention of Fonterra, the SFF board was saying it had the right to transfer 100% of the meat co-operative’s assets into the joint venture on whatever terms it saw fit without shareholder permission.
This had “jaw-dropping implications” for the rights of shareholders in other companies and the Government should urgently review the law.
On the matter of whether Fonterra might ever have to find funds in the same way as SFF, Hamlin’s concerns included Fonterra’s low-cost loans to its producers.
“That might be okay if Fonterra had the money to lend, but Fonterra is in debt itself and I can’t see that farmer welfare is either a wise or proper thing for a farmer co-operative to get into.”
Waikato University agribusiness professor Jacqueline Rowarth was adamant Fonterra directors were unlikely to do anything without shareholder support.
One indication of why they heeded their shareholders was the way they handled the Trading Among Farmers scheme and the public listing of the Fonterrra Shareholders’ Fund, she said. Those issues “went endlessly through the shareholders’ and when it failed they went back for a rethink, then went back to the shareholders to get it through”.
Brian Gaynor, portfolio manager at Milford Investment and commentator on finance-sector issues, agreed. Nothing could happen unless Fonterra’s directors first supported a proposal and then put it to shareholders.
If a Chinese group, for example, did come to Fonterra with a joint-venture proposal, stock exchange rules would oblige the board to announce the plan.
If the directors approved the arrangement but said they would not be putting it to shareholders for a vote, the shareholders could call an extraordinary meeting and dump the directors.
Woodford noted in the SFF recapitalisation there had been only one serious suitor and the shareholders had willingly accepted.
Synlait had been in a similar situation a few years ago. The Bright Food Group had stepped up when others either could not or would not.
“The result is a thriving company, providing a considerable number of jobs, and with a growing list of farmer suppliers. Interestingly, any one of us can still buy shares in Synlait should we wish to.”
As a nation, New Zealanders saved very little, Woodford said.
“As a consequence, we have to rely on others to provide the capital. Change our national character and that problem would go away, but in the meantime …”
