Fonterra Co-operative Council chair James Barron said the assurance from Northington Partners had been sent to farmer-shareholders along with the council’s 2021 annual report.
The risk of ownership concentration in Fonterra arising from proposed changes in the share standard will not adversely affect the co-operative, according to investment bankers and corporate advisors Northington Partners.
The firm was commissioned by Fonterra Co-operative Council to assess the proposed capital restructure, which includes much smaller minimum shareholding requirement and much larger permitted excess share ownership.
Within what Fonterra now calls the new flexible shareholding the historical one-for-one share-backed supply rule would be considerably changed.
The minimum requirement would be one share for three kilograms of milksolids and farmers would be permitted to own shares up to four times their annual milksolids production.
The minimum is to encourage membership, loyalty and milk supply and the maximum allows farmers to expand their investment in Fonterra and help liquidity in the farmers-only sharemarket.
Agriculture Minister Damien O’Connor has said the higher risk of diverging shareholding interests is concerning him.
“I am particularly concerned that the current proposals would create a higher risk of diverging shareholder interests inside the co-operative, between farmers with minimum shareholdings for supply only and those with larger shareholdings held for investment purposes,” O’Connor said.
Fonterra chair Peter McBride said that the issue had been examined by consultants to both the company and its shareholder council and their advice would be passed on to O’Connor.
Council chair James Barron said the assurance from Northington Partners had been sent to farmer-shareholders along with the council’s 2021 annual report.
“Given the governance structures in place and the fact that voting rights will continue to be based on share-backed milk supply, any ownership concentration will not adversely affect control of the co-op,” Northington advised.
“Northington’s comments should provide a level of reassurance to farmers that this proposal is in the best long-term interests of both Fonterra and its suppliers,” Barron added.
Currently the largest 30% of farmer-owners hold 62% of total shares and votes.
Fonterra estimates that under the new structure the largest 30% of farmer-owners would hold around 75% of total shares and have 70% of votes.
LIC and Zespri have around 80% ownership by 30% of producers.
In its reassurance Northington cited other farmer control and governance aspects of Fonterra and the one vote for one share-backed supply rule, which will continue unchanged.
“Even in the event ownership becomes far more concentrated, we suggest this may be more of a perceived issue rather than having a material impact on control,” Northington said.
