Fonterra Co-operative Group says it will allocate up to NZ$50 million (AU$45 million) to a share buyback program, saying its stock is currently undervalued.
Fonterra will buy shares at market price and the buyback could run for as long as 12 months.
Fonterra chair Peter McBride said, “The co-op considers the prevailing price, particularly since late April, has undervalued Fonterra shares, which is a key reason for announcing this buyback.”
McBride said he was aware of concern about Fonterra’s declining share price. Liquidity in the Fonterra Shareholders' Market had been low since it began a capital structure review in December last year, which includes a new flexible shareholding structure. Its share price has fallen 19 per cent since the beginning of the year.
He said one of the factors’ impacting liquidity was that share price compliance obligations had been on hold for the last year. He reminded shareholders that even though the obligations were on hold, farmers could still buy or sell shares within shareholding requirements, which are 1-2x their three-season average milk supply.
While the co-op said it didn’t have an effective start date, it was preparing to implement the flexible structure as soon as possible.
McBride added that the board had decided when the new structure is effective, suppliers who choose to acquire their minimum holding under the new six season entry timeframe, will not be locked into supplying the co-op for six seasons once they have acquired their 33 per cent holding.
The company will cancel all the shares its buys back, thereby reducing the number of shares on issue and hopefully lifting its value.
