Fonterra is looking again at its capital structure but will take a more cautious line having learnt from mistakes it made in its failed 2006-07 proposal.
Chairman Henry van der Heyden refused to give any details or a time-line for a new capital structure proposal at a press conference this week, other than to say the board was considering alternatives.
They did not include the board's favoured option in 2006-07, of a partial float.
Mr van der Heyden said the issues facing Fonterra of redemption risk and funding capital growth in 2006-07 remained, but the board had learnt from the earlier process.
He said the board at that time was out of step with shareholders by pushing for a partial float, the Shareholders Council was not in a position to support the option when it went public and shareholders needed to be given the complete package.
The partial float was designed to preserve value in the company, whereas shareholders seemed more intent on retaining control, he said.
The board would prepare the complete package and engage the Shareholders Council before releasing its new proposal to its 10,400 shareholders.
Mr van der Heyden said it took three to four years to create Fonterra and an issue as important as a new capital structure should also take time.
Chief executive Andrew Ferrier said redemption risk was heightened during an economic downturn, while the tighter credit market made it difficult to raise equity, an option that was always difficult for a co-operative.
The current economic issue brings realism to a situation that has been theoretical.
Next month the company will launch a $300 million retail bond offer on the New Zealand market, because to do so overseas was considered more expensive.
Mr Ferrier said countries were shrinking into themselves with banks favouring local companies with lending.
Mr van der Heyden said last year Fonterra paid out $500 million to $600 million for surrendered shares as a result of the drought and this year falling milk prices could see farmers seeking to cash in their shares.
It would move the [capital structure] debate on, he said.
The dairy company faced increased competition from new dairy companies seeking contracted milk supply rather than requiring suppliers to own a $4.47 share for every kilogram of milksolids (kg m/s) they supply.
Competition is fierce in the south of the South Island. Synlait operates at Dunsandel, in Canterbury, New Zealand Dairies at Studholme in South Canterbury and Dairy Trust at Bluff. Mataura Valley plans to build a plant north of Gore.
It is known some companies have a waiting list of potential suppliers.
Fonterra still has global supply aspirations but its three-year strategy has been refined and it no longer plans to develop an international consumer brands business.
It has been hurt by its failed San Lu foray in China, where it did not have the control over the milk supply chain it thought it had. This allowed criminals to taint the milk with melamine, which killed several children but made thousands of others sick.
Fonterra still has an ingredients business in China along with a 3000-cow farm, but Mr Ferrier said any other business foray in the market would require a safe and proven supply chain.
Mr Ferrier said Fonterra would stick to things it was strongest at, and that included partnering global customers and using that relationship to enhance the products they supplied.
"Our game is to control the output from the farm through to the manufacturing of product and sale to the customer," he said.
Global consumer brands company Nestle was seven to eight times the size of Fonterra, so rather than compete head-on, Mr Ferrier said it made sense to work with Nestle to enhance returns through adding value.
In countries where Fonterra had control over supply, such as Australia and New Zealand, it would develop consumer brands, but plans to do so in Europe and the United States would be dropped.
Mr Ferrier said the company was likely to sell and buy businesses over the next few years as it cemented its strategy.
