Preliminary Valuation Of Fonterra Fair Value

Friday 14 December 2001 For Immediate Release

Preliminary Valuation Of Fonterra Fair Value Shares

Fonterra Co-operative Group Ltd has set a preliminary estimate of the company's "fair value" shares for the 2002/3 season.

Standard & Poor's has advised the Board of its valuation range, and the Board has advised shareholders this week of a preliminary estimate of the 2002/03 fair value share price of NZ$3.85. When taken together with shareholders' investments in peak notes, this values Fonterra equity at $5.4 billion.

In the past, shares in dairy companies have had static nominal values. With the creation of Fonterra, the fair value shares have been introduced to more accurately reflect farmers' investment in the company. Dairy farmers who supply Fonterra are required to hold one fair value share for every one kilogram of milksolids they produce. They are also required to hold another capital instrument, peak notes, in addition to co-operative shares.

Under Fonterra's constitution, the value of shares must be set before 1 June, the start of the dairy season when most dairy farm and herd transactions occur. However, to assist farmers in planning production levels and budgets for the season ahead, Fonterra is required to advise its shareholders of an estimate of its fair value shares by 15 December.

The Fonterra Shareholders' Council, elected by shareholders, appoints a valuer which then reports to the Board of Directors in early December with a preliminary valuation range, and in May with a final valuation range. Based on this advice, the Board adopts the preliminary and final value of shares. Standard & Poor's is the appointed valuer for the 2002/03 season.

Fonterra's Chief Financial Officer, Graham Stuart, said the Standard & Poor's valuation was the first time the New Zealand dairy industry has been subject to outside scrutiny of this kind.

"Twenty staff from Standard & Poor's North American offices have been working for two months to complete the valuation. We are fortunate to have a firm of such high international standing as Standard & Poor's to undertake this valuation," he said.

The benefit of providing this preliminary estimate is that new entrants, and existing shareholders who plan to increase production for the season ahead (starting on 1 June 2002), also have the option to set the purchase price of their new shares at this indicative valuation price (plus or minus 7.5%).

To take advantage of this benefit, a farmer must apply to Fonterra during the application period of 15 December 2001 to 28 February 2002, pay a 20% deposit and pay for the balance of the shares at the beginning of the season. Existing shareholders are not required to apply to increase supply - if they do not make an application, they will be issued additional shares for any increases in production at the end of the season (June 2003), and pay for those shares based on the final share price. This final share price will be announced by the Fonterra Board of Directors by June 2002 after Standard & Poor's have completed the next valuation.

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