Westland & Tatua Farmers In Line For Capital Bonus
ACT Commerce Spokesman Stephen Franks revealed today that the fine print in Fonterra's constitution, and gaps in the Minister's regulatory package, mean that Tatua and Westland farmers get a capital advantage of as much as $3 per kg equivalent from their decision to stay out of Fonterra.
He says that nothing in the 'regulatory package' Bill winding its way through Parliament requires Fonterra to pay an exiting farmer a fair value which is full value. Instead it is to be a carefully calculated notional value per share, which could be as low as 50% of the true enterprise fair value.
"Farmers and others concerned might think it was bound to stick with fair value - silly them. Only a lawyer could see there are no constraints in the 100 or more pages of the Bill on Fonterra lowering the price to exiting farmers.
"Whatever happens, Tatua and Westland will get the true enterprise fair value on withdrawing from the Dairy Board. That is, their full proportion of the normally calculated value of the Board, (including its brands and prospects).
"Theoretically at least the shrewd Westland and Tatua farmers could take the benefit of the true fair value payment then exercise their open entry rights to rejoin Fonterra at the low entry value produced by its deep discount share price formula. Once in of course they couldn't do it again. On the next exit they would get only what other Fonterra farmers would get.
"This seems to be a result of sly drafting in the Minister's deal. The deal allowed Globalco directors to push the line, at meetings all over the country, that the new Board would have the discipline of potential fair value exit. That would restrain Board recklessness with dairy farmers' money in overseas adventures.
"Meanwhile the cunning drafters of the Bill before Parliament weren't even using the term "fair value". The Minister too might claim that he never used those words. The Bill actually includes the fair value parts of the Constitution but it doesn't tie Fonterra to stick with them.
"The Government could easily fix the problem in the regulatory package to make the law mean what people thought it would say. Whether it will do so remains to be seen," Stephen Franks said.