A strong theme during consultation has been easing the effects of transition from the current 1:1 share standard to a proposed 1:4 on some categories of farmers who may have paid up to $6 for shares.
That is because supply shares have already fallen in value and are likely to stay down for an extended period.
After a recent peak of $5.10 on March 8, supply shares have fallen to $3.05, a $300,000 reduction in share capital for the average-sized, fully-shared Fonterra supplier.
A farmer-only market for shares in the future may be subject to a restricted market discount of 20-25% than if the current structure was retained.
Under the heading of greater flexibility, farmers have proposed longer times for sharing down as a way of honouring the loyalty of those who are considering retirement or succession.
It might add depth to a proposed farmer-only sharemarket, should the Fonterra Shareholders’ Fund (FSF) be capped or bought out.
Chair Peter McBride says time to adjust is important to farmers confronted by significant change.
“One of the ways we can lessen the impact of a farmer-only market would be to give farmers more time to toll the value of their shares via dividends,” McBride said.
“In the past few weeks, we have heard from a lot of farmers nearing the end of their careers who want the option to stay connected to our co-op and hold their dry shares for longer.
“That is something we are open to.”
Fonterra has distributed a FAQ, or frequently asked questions, booklet after the round of consultation on capital structure, attended by more than 4000 farmers.
Concerns over the price of shares have been dominant, which Fonterra has put down to uncertainty about the future structure and the temporary halt to 2022 season compliance trading.
The proposed minimum share standard ratio of 1:4 was a balance between meaningful flexibility and co-op principles of share-backed milk supply, the FAQ booklet said.
The maximum share cap of four-times supply was to avoid significant concentration of share ownership.
As it is currently, 85% of farmers have dry shares and around 30% of shareholders hold 53% of the co-op.
The threat of share ownership concentration was also cited against a dual-share structure with a non-compulsory investment share.
Less alignment between shareholders was also a risk in a dual-share structure, which would be more complex to transition to and operate.
Fonterra says its board preferred no FSF in future to simplify the structure and minimise the buy-out amount before the fund grew any larger through the conversion of dry shares into units.
But the buy-out offer needed to attract 75% approval from FSF unitholders.
“However, if we cannot reach an acceptable arrangement to buy back the fund then a capped fund would also work,” he said.
Fonterra has not indicated the likely cost of buying back the fund, but said its degeared balance sheet had provided flexibility to do that at current levels.
McBride says the current round of consultation would go to the end of June, to be followed by a refined preferred option and another consultation with farmers.