Sir Ron Brierley moves on and Aussie firm looks to replicate Fonterra

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Sir Ron Brierley moves on and Aussie firm looks to replicate Fonterra.

Larry Williams:
Sir Ron Brierley has resigned from the Coats/GPG Board today after 25 years. What's your take?

Murray Brown:
Yes, a bit of a momentous day today with Sir Ron Brierley resigning from the Coats Group Board after being a Board member for 25 years and Chairman of the company for 20 of those years. Some listeners may know Coats Group as Guinness Peat Group or GPG as it was called, but its name was changed to Coats Group just last month after it had progressively sold off all its investments except for Coats Group — which is the world's biggest thread maker.

Sir Ron Brierley back-door listed GPG after he left his flagship company Brierley Investments back in the late 1990s and became Chairman of GPG back in 1990. GPG was hugely successful as an investment company for many years but the share price peaked just before the GFC and hasn't really recovered markedly since then.

Although GPG or Coats as it is now called, is listed on both the New Zealand and UK stock exchanges, it's really now an international thread maker — with little or no business in New Zealand. This is now reflected in its board composition, with only one of its seven current directors domiciled here in New Zealand and it's probably only a matter of time before the link with New Zealand breaks and it's severed completely.

Followers of Sir Ron Brierley will still be able to follow him through another investment company listed on the ASX — Mercantile Investments — of which he is Chairman alongside some of his ex GPG colleagues Gary Weiss and Ron Langley. Sir Ron is a large shareholder in Mercantile Investments, although the company is still relatively small.

Larry Williams:
Milk producer Murray Goulburn is looking to list non-voting shares in Australia. How does this compare to what Fonterra has done here?

Murray Brown:
Murray Goulburn is the biggest producer of milk in Australia and is looking to list its supplier shareholder shares in a model that is very similar to what Fonterra has done here with its Fonterra Shareholders' Fund. The listing will be non-voting shares so that the supplier shareholders do not lose control of the company — just like here with Fonterra.

It's interesting to look back at the performance of the Fonterra Shareholders' Fund shares since they were listed here back in November 2012. The shares were offered at $5.50 and rose quickly to be over $8 in May of 2013. Since then they have been on a steady decline and are now trading below their issue price at $5.33.

After adjusting for dividends, non-voting shareholders in Fonterra are up around 6% on their original investment, yet the broader market has risen by 45% over that same timeframe. So it has been an underperformer thus far.

One of the perceived issues with Fonterra is that what is good for a supplier shareholder (i.e. a high farm gate milk price) is not necessarily good for a non-voting shareholder as a high farm gate milk price is a key input cost in making milk powder and the company may not be able to re-coup that extra cost. Murray Goulburn's non-voting shareholders may face a similar quandary.

Of course there are many other reasons why Fonterra has been struggling in recent times, but the perceived conflict between what is good for a non-voting shareholder and what is good for a supplier shareholder continues to surface amongst investors.


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