The risk owners of 10 million Silver Fern Farms (SFF) shares could seek to cash in their stake has giventhe meat company reason to review its capital structure.
Consultants Grant Samuel said 10,000 dry shareholders - farmers who did not supply stock to SFF in either the current or immediate past season - held 10 million $1 rebate shares and supplier investment shares, which remained "a continuing redemption liability for Silver Fern Farms " if they cashed them in.
In a report sent to shareholders this week outlining details of SFF's proposed capital restructuring, Grant Samuel said if the proposal was accepted, those shares could be transacted with a willing buyer, minimising the redemption risk to the company.
SFF hoped to raise about $80 million through a bonus share and cash issue which would see its shares tradeable on the Unlisted exchange.
But qualifying farmer suppliers who transfer their shares to a new class of Ordinary Shares would retain control of the company by virtue of 60% of the voting power.
SFF said the new capital would reduce reliance on borrowing and fund its new plate-to-pasture marketing strategy.
The company also proposed restructuring governance by reducing the board from 12 directors to eight, with five farmer-elected directors, including the chairman, and three appointed.
Grant Samuel said the changes would remove inherent weakness such as redemption risk, increase equity, introduce a transparent value-based share, retain farmer control and enhance the rebate model.
The benefits of raising fresh capital and opening the company's share register to non-suppliers outweighed the disadvantages of diluting SFF's co-operative character.
"However, this should be weighed against the significant beneficial voting rights retained by qualifying shareholders and the advantages of inviting non-supplier shareholders on to the share register."
Any individual or group would have a 5% cap on their shareholding, but the report revealed the board could raise that cap in some circumstances, although qualifying farmer shareholders would still retain 60% of voting rights.
Grant Samuel agreed with a valuation of SFF by Dunedin advisers Parker O'Connor, which valued the meat company at between $255 million and $285 million and the shares at $3.06 to $3.44.
Last August Grant Samuel valued SFF at $239 million to $289 million but the reduction in company debt since then has been offset by the recession, reducing its value.
The report warned that shares were likely to initially trade at a discount greater than 20% due to a lack of buyers, as existing suppliers would already have invested, non-suppliers would want to see liquidity in SFF shares and potential buyers would want to see shares traded.
