Listed Dairy Equity Ltd is seeking a High Court order to allow it to return $20 million to shareholders in the wake of its failed bid to be the first company to offer dairy-related stock to general investors.
Listing on the NZX in September last year, achieving a target $91.5 million, Dairy Equity immediately ran into problems when only $21 million of Fonterra ‘‘fair value shares'', derived from the value-added component of the Fonterra payout, were sold to it by dairy farmers.
Dairy Equity chairman Peter Jensen said despite major promotion at the time, farmers had been slow to grasp the concept and sell their shares.
Mr Jensen said in a statement to the market yesterday that the High Court proposal was the only practical way of returning capital to shareholders in a ‘‘tax efficient'' way, while maintaining the balance of its assets for sale, which include its investments in Fonterra fair value shares, intellectual property rights and the value of its NZX listing.
ABN Amro Craigs broker Peter McIntyre said the timing and circumstances of Dairy Equity's float saw it become a ‘‘victim of Fonterra's success''.
Following Dairy Equity's listing, Fonterra announced increased milk solid payouts, meaning instead of dairy farmers raising some capital through share sales to Equity, cash from the increased Fonterra payout was accessible for expansion or paying off debt.
Mr Jensen estimated it could take up to six weeks to get the court order and might require a special shareholders' meeting to approve the return of the $20 million.
At the annual shareholders' meeting in December, a resolution was passed, by shareholders, that the Dairy Equity board ‘‘investigate steps necessary to realise the investments of the company'', to return the net proceeds to shareholders.
Following Dairy Equity's listing, Fonterra announced a major capital review, which could lead to a partial listing in two years, followed by a forecast which saw a reduction of the value-added component from 39c per share to 20c
In December, Mr Jensen said, ‘‘The market circumstances in terms of the value-added component of milk and the commodity milk price outlook also conspired against our being successful.''
Under Dairy Equity's original proposal, farmers would receive cash for their shares, but retain both their Fonterra voting rights and the annual Fonterra payout for each kilogram of milk solids.
However, the existing annual dividend, or value-added component of the milk solid payout derived from Fonterra's other activities beyond the value of milk supplied, would go to Dairy Equity shareholders.
The original $80 million to $100 million float of $1 shares and listing of Dairy Equity appeared set to usher in a new era for dairy farmers, who have long decried the amount of capital locked up in their mandatory Fonterra shares.
Since 2002, Fonterra had been promoting the concept of splitting the contribution in the payout of the milk value and the dividend, for better financial reporting purposes.
