Fonterra’s latest supply offer to shareholders has been very popular with farmers.
Fonterra Co-operative Group today confirmed that farmer shareholders offered to sell 75,223,742 economic rights of Wet Shares in this month’s Supply Offer, amounting to a total value of $595,772,036.64.
The high level of demand means the Offer will be scaled. Fonterra will buy 79.7284 per cent of the economic rights each farmer shareholder offered to sell.
Chairman John Wilson said about 20 per cent of Fonterra’s farmers took advantage of the opportunity to release some of the value of their shareholding, providing more flexibility for their businesses.
“A significant number of farmer shareholders have thought through the potential benefits of using the additional flexibility provided by the changes made to our capital structure last year.
“Some have indicated they will use the Offer proceeds to fund further growth of their farming businesses, while others are saying they will relieve some of the cash flow pressure after this year’s drought,” said Mr Wilson.
The Supply Offer will not increase the current size of the Fonterra Shareholders’ Fund. Fonterra is purchasing the Units that arise as a result of this Supply Offer and will then redeem them for Fonterra Shares, which means that the Offer will not affect the total number of Units on issue.
Shareholders Council chair Ian Brown says the take-up shows farmers are beginning to take advantage of the flexibility Trading Among Farmers (TAF) offers them.
“The first Supply Offer saw Farmers exercise some understandable caution but with growing confidence in the new system Farmers are now ready to use TAF as it was intended.
“The solid level of demand from Shareholders to release some of the economic value of their shares shows they are using TAF to their benefit.
“Farmers are taking advantage of the greater flexibility it offers them in making decisions that impact the day-to-day running of their business.
“This also strengthens our Co-operative as Fonterra is now able to make better use of our capital rather than, as the recent drought would have compelled it to, distribute it as Farmers redeemed their shares.”
TAF was started to offer protection for the company from redemption risk – too many farmers selling shares when the price was high.
The new system was designed to give farmers more flexibility and the company more security and it seems to be working as intended.