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Fonterra Pressure Positive For Dairy Equity

Shareholder Council Pressure On Fonterra Likely To Be Positive For Dairy Equity

Dairy Equity Limited says it is likely that today’s Shareholder Council criticism of Fonterra’s payout performance will increase farmer demand for equity SWAPS.

Dairy Equity chairman Peter Jensen said that council criticism gives lie to recent media comments to the effect that Fonterra’s performance has been so good that farmers will not want to sell the beneficial ownership of their Fair Value shares to Dairy Equity through SWAP agreements.

Mr Jensen said that he believed more and more Fonterra suppliers were coming to the view that their investment in Fair Value shares may not be a risk free journey involving ongoing increases in Fonterra’s share price and the value-added component (VAC) payouts that are the dividends on their shares.

“We expect that scrutiny of Fonterra’s performance and debate over its capital and payout structures will be ongoing. We are very comfortable with this and see it as positive. Obviously we will adjust the price we pay for SWAP agreements if Fonterra does make structural changes, but our agreement is flexible and for now we are still offering to enter SWAP agreements at the current Fair Value share price of $6.56/share.”

Mr Jensen said that neither Dairy Equity investors nor farmers who take up SWAP agreements with the company should be concerned about possible changes in the way Fonterra calculates its VAC payout.

“SWAPS have been designed to accommodate changes in both Fonterra’s capital structure and payouts which we expect to be ongoing, and investors in Dairy Equity are in exactly the same position as Fonterra shareholders.

“Both parties are reliant on the prudent and fiduciary obligations on Fonterra’s board and management to do what is in its shareholders’ best interests. On this basis, we believe that it is highly unlikely that Fonterra will make payout or other changes that destroy shareholder value and that its shareholders and other parties such as bank lenders and rating agencies will have more than a passing interest if they do.,” Mr Jensen said .


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