It has allocated $50 million from capital in addition to, and separate from, the $300m support to liquidity in the Fonterra Shareholders Market (FSM) in the transition to the Flexible Shareholding structure.
The buyback start date is June 30 and the programme may run for 12 months, as Fonterra from time to time enters the market at the prevailing price.
It has not set a threshold or support price target, saying that would be counter-productive and against stock exchange rules on advice.
Simon Till, director of capital markets for Fonterra, said buying back shares at the current low prices could be a good investment for the company.
It considered its shares undervalued because of its asset backing, financial results and guidance and the longer-term strategy already announced.
The maximum allowable buyback volume in 12 months is 80.6m shares, or 5% of Fonterra’s shares on issue, but this is not a signal that all the $350m will be used in that way, or that all the funds will be used.
The buyback allocations will not change the longer-term divestment and capital return and reinvestment intentions already announced.
Till said the buyback will not include investment units in the Fonterra Shareholders Fund (FSF) because Fonterra Cooperative Group (FCG) farmer-only shares are trading at lower values and therefore present a better investment proposition.
He expects the market for FSF units to gain confidence from the support given to the FCG market.
Fonterra chair Peter McBride said right now the FCG share market is very thin and quite volatile, although there are signs that some farmers are buying and taking investment positions.
Following the announcement FCG shares rose by 5% and FSF units by 7% but both are at least 20% below their levels 12 months ago and their mid-$4 levels before the prolonged share restructuring intentions were announced.