To maintain the value of its shares, Fonterra will spend up to $50 million repurchasing them during the upcoming year.
The dairy cooperative announced its intention to purchase up to 77 million shares, or 5% of the outstanding stock. It’s anticipated that the 12-month on-market buyback will begin in late August.
Following a $50 million buyback last year, when the cooperative claimed the shares were undervalued and had an adverse effect on farm balance sheets, Fonterra has now made its announcement.
Miles Hurrell, Chief Executive of Fonterra said in a statement, “The primary purpose of the buyback is to be value accretive, and any decision to buy back shares will be considered alongside Fonterra’s other discretionary investment opportunities.”
Because Fonterra is a cooperative, its farmers are required to own shares in proportion to the amounts of milk a provider produces each season. It has modified to a more flexible sharing structure to enable it compete with commercial rivals that don’t require share ownership, allowing farmers to retain less shares and expanding the pool to include sharemilkers, contract milkers, and farm lessors as related shareholders.
Next month, Fonterra said it would release further information on the buyback.
The shares of the cooperative last traded at $3.12 and had increased 27% in value since last year.
Fonterra Co-operative Group Limited, a global dairy cooperative that is traded on the New Zealand stock exchange, is owned by about 9,000 New Zealand farmers. Nearly 30% of the world’s dairy exports are handled by the company, which has an annual revenue of roughly $22 billion New Zealand dollars.
It will be the biggest dairy company in the Southern Hemisphere and the sixth largest dairy company in the world by 2022.
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