Fonterra’s Proposed Capital Restructure – Independent Analysis
Open Country Dairy Limited engaged Castalia to analyze Fonterra’s proposed capital restructure. The proposal would significantly change the number of shares in the dairy cooperative that prospective farmer-suppliers would have to acquire. The proposal is likely to cause the price of Fonterra shares to collapse. It will shift significant wealth from current farmers to Fonterra itself. This has detrimental effects on competition in the milk processor market, compounding anti-competitive changes in 2020 to the Dairy Industry Restructuring Act 2001. Fonterra’s proposed capital restructure is likely to lead to higher milk prices, including for domestic milk consumers.
This report examines Fonterra’s proposed capital restructure and its implications for the cooperative, its shareholders, and the broader dairy processing industry. It provides context for the restructure and the challenges facing Fonterra. The report includes a comparison of the current shareholding and trading arrangements under Fonterra’s capital structure and under the proposed changes. The proposed changes include reduced shareholding requirements and adjustments to trading rules.
We also analyzed the likely impact of the Restructure on Fonterra’s share price, exploring the drivers behind anticipated price reductions and their implications for current and future shareholders. The discussion then shifts to the broader market, assessing how the Restructure could influence competition between dairy processors. In particular, the influence to Fonterra’s pricing strategies and market dynamics.
We summarized the Restructure trade-offs, highlighting its benefits and costs for Fonterra and its farmer-shareholders. The final section proposes recommendations for addressing regulatory gaps and ensuring fair competition and transparency in the dairy processing sector.
The report is available here.
Queries about the report can be directed to andreas.heuser@castalia-advisors.com
Update 20 April 2022
Castalia issued a response to comments from Fonterra and in the media about our report. The response is available here.
