My two main issues with the Fonterra capital structure proposal as it stands are as follows:
1. The pre-conditions. Although the pre-conditions set by the board are a good idea, most of the pre-conditions are very subjective and are widely open for interpretation. I would prefer to see the board come out with some clearer guidelines on how these pre-conditions will be met because although I think it is a valuable tool, the success of the final product is dependant on the quality of the tools they are using.
2. Protection for suppliers. As a PLC directors must treat all shareholders equitably and must work solely towards the interest of the shareholders over the suppliers, even if the suppliers are a majority shareholder. As NZ dairy farmers move away from the lowest cost producers of milk, it becomes even more important to protect the NZ milk supply. Fonterra is going overseas to capture cheaper milk and this cannot be at the expense of NZ milk. Although Henry Van der hayden noted, it will be in shareholders interest to keep stainless full so the price Fonterra pays for it's milk will have to be competitive. This argument has two flaws, the first is that there isn't any serious competition to Fonterra and at this time most farmers have no alternative but to supply Fonterra. Secondly, and more importantly is that this stainless has a limited life span and it is only in the supplier's interests to replace it in NZ. Fonterra would be better off investing new stainless overseas to better capture the cheaper milk supplies as this would be in the interests of the shareholders, and as a PLC shareholder interests must take precedent.
With this in mind I would like to see some stronger mechanisms in place to protect the price paid for the NZ milk supply before the co-op is floated.
4 comments:
Interesting thought Farmgirl but is listing the only way. How come there is no examination of what Fonterra could do by continuing as a co-op? How do the much bigger co-ops of the world, many of them agriculture co-ops, get by? What are your thoughts on the things mentioned here:
http://www.ruralnetwork.co.nz/BlogDetails.aspx?id=206578
I read your blog page Pippa and I agree with you that options that don't include listing have not been properly explored. (One might suggest the Chairman have an ulterior motive for not doing due diligence in developing ideas away from listing on the NZX). Ex-board member Harry Bayless has come out at the meeting last night against the merger and outlined some compelling arguments as to why it is not in farmer’s best interest to list. He was due to publish a document on the Fencepost discussion forum today, but I not that the site has since closed down. I will post a link when I can get on. Although I was responsive initially to exploring the option, I didn’t have to dig very deep below the surface to see that the only ones having to pay for Fonterra’s growth is going to be the farmers. Look out for future blogs on other interesting issues that came from the Networkers meeting.
The link to the discussion paper by ex-director Harry Bayliss is:
http://www.fencepost.com/pdfs/FonterraCapitalStructureSubmitted.pdf
Well worth the read
Your link to Harry Bayliss' paper doesn't work for me, Farmgirl, and I spoke to Harry who was also concerned that sharemilkers, to whom the issue is also very important, could not access it on the Fencepost site either. It can, however, be viewed on Rural Network here:http://www.ruralnetwork.co.nz/BlogDetails.aspx?id=208898
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