Fonterra seeks up to NZ$525 mln through Shareholders' Fund offer with units to be priced between NZ$4.60 and NZ$5.50 each

Fonterra has detailed its sharemarket debut saying units in its new Shareholders' Fund will be sold for between NZ$4.60 and NZ$5.50, with trading set to begin on both the NZX and its Australian equivalent from November 30.

The price range is above Fonterra's most recent fair value share price of NZ$4.52.

The dairy co-operative says its offer comprises NZ$500 million worth of units, with the ability to accept oversubscriptions of up to another NZ$25 million. Fonterra is forecasting a dividend for its 2013 financial year of 32 cents per share, implying a 2013 gross distribution yield of 5.8% to 7% depending on the final unit price.

Here's Fonterra's presentation and its prospectus is here.

And here's Fonterra's full announcement:

Fonterra today outlined details of a unique opportunity for the public to participate in the Co-operative’s performance with the release of an Offer Document for the Fonterra Shareholders’ Fund.

Chairman Sir Henry van der Heyden said that for the first time in Fonterra’s history, and with Farmer Shareholders’ support, members of the public will be able to gain exposure to New Zealand’s largest company and the world’s largest dairy processor by buying Units in the Fonterra Shareholders’ Fund.

Fonterra today unveiled details of two key components to support Trading Among Farmers:

The Supply Offer booklet inviting Fonterra Farmer Shareholders to sell the economic rights of a portion of their shares to the Fonterra Shareholders’ Fund.
The Offer Document (a registered prospectus and investment statement dated 26 October 2012) inviting the public to gain exposure to the Co-operative’s performance by purchasing Units in the Fonterra Shareholders’ Fund.

Sir Henry said the Fonterra Shareholders’ Fund would support liquidity in the Fonterra Shareholders’ Market, allowing Farmer Shareholders to trade Fonterra Shares among themselves with a more flexible structure, rather than buying and redeeming them from the Co-operative.

“This will provide permanent capital for Fonterra and reduce redemption risk, while preserving 100% farmer control and ownership of the Co-operative,” said Sir Henry.

“It is a historic day for the Co-operative. The Fund provides a unique opportunity for the public to gain exposure to the financial performance of Fonterra and the global dairy industry.

“Farmer Shareholders and Unit Holders will invest in the performance of Fonterra through separate structures. What they both have in common is the chance to be part of the continuing performance of our Co-operative – a New Zealand success story,” said Sir Henry.

Chief Executive Theo Spierings said that Fonterra’s performance shows it is a leader in the international dairy market, and a unique investment opportunity.

“In New Zealand in the 2011/2012 dairy season, we collected approximately 17 billion litres of milk – and more than 2 billion litres overseas.

“NZ Milk Products is the backbone of Fonterra, collecting milk, manufacturing dairy products, and exporting to customers around the world. Our sales networks reach customers in more than 100 countries. Products range from everyday dairy nutrition powders, to advanced dairy nutrition products, and our customers include five of the world’s biggest infant formula manufacturers and many of world’s largest food companies.

“Fonterra builds on earnings from New Zealand and internationally-sourced milk through integrated regional businesses which focus on branded consumer dairy products, and out-of-home foodservices. Our regional businesses achieved sales of around $6 billion across a diverse range of geographies and product formats in the last financial year.

“Fonterra is well placed to meet rising global demand for dairy, with 72% of our NZ Milk Products’ sales volumes and 46% of our regional business revenues coming from emerging market regions in the last financial year.”

Fund Chairman John Shewan said the Fonterra Shareholders’ Fund was a unit trust that would acquire the Economic Rights of Fonterra Shares and issue Units to investors.

“Farmers and other investors can purchase Units in the Fund which will give them exposure to the Economic Rights of a Co-operative Share – dividends and capital gains or losses on those Shares,” said Mr Shewan.

The indicative price range for Units in the Fund is $4.60 - $5.50. The Final Price payable per Unit is expected to be announced on or about 27 November 2012 following the completion of a bookbuild process, under which selected institutional investors and NZX Firms are invited to lodge bids indicating the number of Units they wish to apply for at a range of prices. The Final Price could be within or above the indicative price range.

The Co-operative has forecast a dividend for the 2013 financial year of 32 cents per share. The indicative price range implies a 2013 financial year gross distribution yield of 5.8% to 7%.1

“It is important to note that this is an opportunity to invest in Units issued by the Fonterra Shareholders’ Fund, and is not an opportunity to acquire Fonterra Shares. However, the return on a Unit is essentially dependent on the performance of Fonterra,” said Mr Shewan.

The Offer Document for the Fund includes details on Fonterra’s business, historical financial information and forecast earnings for the 2013 financial year. As set out in the Offer Document, the Co-operative is forecasting the following financial results for the 2013 financial year:

	FY 2012 Actual (NZD million)	FY 2013 Prospective (NZD million)
Normalised EBIT	1,028	1,079
Profit Before Tax	677	726
Profit for the period	624	690
Dividend per share	32 cents	32 cents

The prospective financial information of Fonterra referred to above should be read in conjunction with the assumptions, sensitivity analysis and the risk factors described in the Offer Document.

The financial information referred to above has been prepared by the Directors of Fonterra. The manager of the Fonterra Shareholders' Fund and its board of directors have not been involved in the preparation or finalisation of any of Fonterra's financial information.

- ENDS -

Key facts about the Fund Offer

The Offer to subscribe for Units in the Fund is scheduled to open on 5 November 2012, after the Financial Markets Authority has reviewed the Offer Document, which is a combined prospectus and investment statement.
The Offer Document can be viewed at www.fonterraoffer.com.
The Offer Document contains five years of historical summary financial statements for Fonterra. In addition, the Offer Document contains forecasts of Fonterra’s financial performance and position for the financial year ending 31 July 2013.
Applications have been made to list the Fund with NZX and ASX, and to quote Units on both the NZX Main Board and ASX.2

Structure of the Fund Offer

The Offer comprises $500 million of Units (with the ability to accept oversubscriptions of up to a further $25 million).
Although there is no general public offer, investors are encouraged to contact a NZX Firm to determine whether they can participate in the Offer to buy Units in the Fund through the Broker Firm Offer.
The Broker Firm Offer is available only to New Zealand resident clients of NZX Firms who have received an allocation from that NZX Firm.
The Friends of Fonterra Offer recognises the contribution that employees, sharemilkers, current and retired Shareholders have made to Fonterra’s performance since its formation. Minimum application amounts under this offer are set at $2000. Maximum application amounts under the Friends of Fonterra Offer offer are set at $50,000, except in respect of Fonterra's New Zealand and Australian employees, whose maximum application amount is $25,000. This offer is extended to:
Fonterra Farmer Shareholders, as at 26 October 2012.
Fonterra-supplying sharemilkers, as at 26 October 2012.
Former Fonterra Farmer Shareholders who have retired from the industry after 26 October 2007 and have not supplied a competitor of Fonterra since last supplying Fonterra.
Permanent employees in Australia and New Zealand.
Up to $25 million of Units have been allocated for subscription under the Australian Supplier Offer to shareholders of the Bonlac Supply Company Limited and suppliers of milk to Fonterra Milk Australia Pty Ltd (both of which are Australian registered companies).
The Institutional Offer consists of an invitation to bid for Units made to selected Institutional Investors in New Zealand, Australia and certain other jurisdictions.

Key points about the Farmer Shareholder Supply Offer:

The Farmer Shareholder Supply Offer will open on 2 November 2012. Fonterra Farmer Shareholders will have the opportunity to sell to the Fund the economic rights of up to 25% of Wet Shares (being, Shares a Farmer Shareholder is required to hold to meet the "Share Standard" for a season) and any Dry Shares (being, Shares held in excess of those required by a Farmer Shareholder to meet the "Share Standard" for a season).
Not all Farmer Shareholders will need the flexibility offered by the Fund right now. If economic rights offered by Farmer Shareholders are less than the minimum Fund size of $500 million, Fonterra will issue shares to make up the shortfall. Fonterra doesn’t intend to permanently retain the resulting equity.

Key Dates

Date	Action
26 October	Offer Document registered and Farmer Shareholder Supply Offer announced
2 November	Farmer Shareholder Supply Offer opens (Supply bookbuild)
5 November	Broker Firm Offer and Stakeholder Offer (Friends of Fonterra and Australia Supply Offer) expected to open
21 November	Stakeholder Offer closes
21 November	Broker Firm Offer closes
26 November to 27 November	Institutional Offer and bookbuild
27 November	Pricing and allocations announced
30 November	Expected allotment and commencement of trading of Units expected to start on the NZX Main Board and ASX (on a deferred settlement basis for ASX)

 

These dates are indicative only and may be amended. Any such amendment will be announced through NZX.

 

1. Represents the total dividend (unimputed) expected to be paid by Fonterra to the Fund in FY2013 excluding the investor-level tax, divided by the implied Fund capitalisation.

2. Application has been made to NZX to quote the Units on the NZX Main Board and all the requirements relating thereto that can be complied with on or before the date of release of this media release have been duly complied with. However, NZX accepts no responsibility for any statement in this media release. The NZX Main Board is a registered market operated by NZX, a registered exchange regulated under the Securities Markets Act 1988. If units are quoted on the NZX Main Board, the Fonterra Shareholders' Fund will bear a Non-Standard Designation. Application has been or will be made to ASX to have the Fund admitted to the official list of the ASX and units admitted to quotation on the ASX. ASX accepts no responsibility for the Offer or for any statement in this media release.