LIC share simplification

LIC shareholders have voted to simplify LIC’s share structure by bringing our co-operative’s two classes of shares together in to a single class. On this page you’ll find all the information about this change and important dates.

LIC share simplification key points: 

  1. Move from two classes of shares to one.
  2. Fundamentals of co-operative protected.
  3. All shareholders will have a vote and receive dividends based on profitability.
  4. Share standard will increase.
  5. All share will be listed and subject to market pricing.

Implementation process

The share simplification will be implemented on 19 July 2018.

Trading in LIC investment shares will be suspended at 5pm on 16 July 2018 to allow the implementation to be completed. Trading in the new single class of Ordinary Shares will open on Monday 23 July 2018.

All shareholders will be sent an updated shareholding statement post-implementation. 

On 19 July 2018:

  • New Co-operative Control Shares are issued / relevant excess Co-operative Control Shares are redeemed to meet the existing Share Standard as part of LIC's 2018 Annual Update. 
  • Share Standard is amended (effective immediately after LIC's 2018 Annual Update).
  • Three Co-operative Control Shares are issued on a nil paid basis for each Co-operative Control Share held (with the liability of $1 per new Share to be repaid over time).
  • Investment Shares are subdivided into four Investment Shares.
  • Existing Constitution is revoked and the New Constitution is adopted.
  • All nil paid Co-operative Control Shares are reclassified into nil paid Ordinary Shares on a 1:1 basis.
  • All fully paid Co-operative Control Shares and Investment Shares are reclassified into fully paid Ordinary Shares on a 1:1 basis. 

Shareholder enquiries

View your shareholding

Rationale for share simplification

The Board believes that simplifying LIC’s share structure by bringing the two classes of shares together into a single class is in the best interests of the co-operative and both classes of shareholders for the following reasons:

  • Protecting the co-operative principles that are fundamental to LIC
  • Ensuring a fairer system that treats ll shareholders equally
  • Giving LIC capital flexibility in the future
  • Supporting LIC’s strategy (Vision, Purpose, Strategic Themes and Values)
  • Delivering a simpler share structure with less hassle for shareholders and LIC

Under the current share structure co-operative shareholders have greater voting rights but have limited exposure to the financial benefits of our recent transformation programme and future growth opportunities. Conversely, investment shareholders, whilst having a right to a greater share of the economic value created by LIC for its shareholders, have limited ability to control the strategy or direction that LIC takes to optimise that value.

This creates potentially serious conflicts between the two existing classes of shares. The Board believes these conflicts will worsen over time and that now is the time to address these conflicts given they will otherwise lead to issues for the on-going management and governance of LIC.

Simplifying LIC’s share structure  will reduce this conflict, preserve LIC’s co-operative principles and allow the Board to focus on a strategy designed to benefit all shareholders equally. proofing LIC and ensuring a resilient and adaptable co-op for generations to come

Announcement downloads

Does the Shareholder Council support this proposal?

Yes.  The Board has engaged with the Council and they support the share simplification proposal. 

Has the proposal been independently assessed at all? 

Yes it has.  The Board commissioned Northington Partners to independently assess the rationale for the proposal, its merits, and relative fairness to the holders of co-operative control and investment shares.  They concluded that, on balance, it is in the best interests of both classes of shareholders and LIC.  A copy of their report is attached to the Notice of Meeting. 

How do I vote? 

Voting is quick and easy.  You can vote anytime online through electionz.com and all you need is your PIN and password from your voting form.  You can also vote by post, in person, or by appointing a proxy to vote at the meeting on your behalf. 

Are there other options for share simplification that LIC will consider if this proposal does not proceed? 

No.  The Board and our advisers have, over the last 18 months, considered a number of other alternatives in-depth and we believe that this proposal is the best one.  If shareholders do not vote for it to the level required, we do not envisage returning with other alternatives for shareholders to consider. 

Will an additional investment be required by me and if so how will that be made? 

Yes, but you don’t need to make any payment at this stage.  For each nil paid share you own, an additional ‘investment’ of $1 will be required.  This will be covered by the reinvestment of the dividend received on the nil-paid shares (and any ordinary shares held to meet the share standard), except if you leave the co-operative at which time you will then have to pay up the outstanding balance.  You can also voluntarily pay up the outstanding balance at any time by notifying the co-operative. 

Will I be paid a dividend on each of the nil paid shares? 

Yes.  The dividend paid on the nil paid share will be the same as on a fully paid ordinary share but will be used to pay up your nil paid shares. 

How long is it likely to take to convert my nil paid shares to fully paid ordinary shares using the dividend pay-out? 

The level of future dividends cannot be predicted, so it is not possible to give a definitive answer on how long it will take to fully pay up all your nil paid shares. 

Will I have to use all dividends I receive on my shares to pay up any nil paid shares or will I be able to keep part of it? 

You will be required to use all dividends received on your nil paid shares and any other shares held to meet the share standard to pay them up to fully paid ordinary shares.  You will receive a full dividend on any other shares and you can do what you wish with that money. 

What is the nature of the $1 obligation placed on me for each nil paid share?

The $1 required to be paid up on each nil paid share is your obligation.  Therefore, LIC would be able to force the payment of the $1 if LIC was ever in financial distress, and if you no longer meet the criteria to be a shareholder of LIC you will be required to pay any outstanding balance on your nil paid shares before selling your shares.

Is there risk for me if the share price decreases? 

Yes, there is risk.  As is the case with investment shares now, ordinary shares going forward will be subject to market pricing.  That means the share price will change to reflect LIC’s performance as well as other economic factors.  The changing market price will not affect the $1 you are required to pay on any nil paid shares, which may expose you to risk.  See the next question for details.  

What happens if the share price is less than the outstanding balance payable when I exit LIC/reduce custom and my shares are not fully paid up? 

If you exit LIC, you will have to pay the outstanding balance (initially, $1 per nil paid share), even if the share price is less than it, before you sell your shares.  If you do not sell your shares within the required timeframe and LIC sells those shares on your behalf then the outstanding balance will be deducted from the proceeds.  For example, if there was an outstanding balance of $0.90 and the share price was $0.85, you would still be required to pay $0.90 and so would need to contribute an additional $0.05 per share. (If there is insufficient proceeds from a sale of your shares that LIC undertakes on your behalf, including any fully paid shares you sell at the same time, the balance will be charged to your LIC account.) 

If you reduce your custom and the number of shares required to meet the share standard reduces such that you hold more shares than you are required, then you can choose whether to keep the excess shares or sell them.  If you continue to hold your nil paid shares, you do not need to pay them up other than through the dividends as explained above. 

Will I have to pay extra if the market price on my nil paid shares increases above $1? 

No, your payment obligation will be fixed at $1 per share and will not be affected by any changes in the market price of shares. 

Do I benefit if the share price increases? 

Yes you do.  If you sell your shares at a market price that is above $1, you get the benefit of the increased market price. 

What happens if the share price is above the outstanding balance when I exit LIC/reduce custom and my shares are not fully paid up? 

If you exit LIC, you will have to pay the outstanding amount on your shares and then sell your shares.  Where the price you receive on your shares is above the outstanding balance you owe on your nil paid shares, you will get to keep the difference. 

If you reduce your custom and no longer need to hold the nil paid shares to meet the share standard, you can choose to continue to hold them or you can pay the outstanding balance and then sell them, and you will retain the amount above the outstanding balance. 

Will the move to a single share structure increase the likelihood of LIC being opened-up to third party capital and a reduction in farmer control? 

It is not the intention of the move to a single share structure to open LIC up to third party capital and, in fact, minimising changes to the co-operative structure is fundamental to the proposal.  The proposal does not make any changes to who can become a shareholder in LIC – it will remain owned exclusively by New Zealand dairy farmer customers of LIC (except for a small shareholding by LIC employees, as is the case now). 

If LIC wishes to introduce further equity funding from a third-party investor for LIC or LIC Agritechnology Company Ltd in the future, it would seek shareholder approval for it at that time.  However, LIC may acquire interests in other companies, make further minority or majority investments, and form joint ventures from time to time as it grows and diversifies the business. 

Why have we moved to market pricing and what are the implications of the ordinary shares being listed? 

After the proposed restructuring, all of the shares will receive the same dividend linked to the financial outlook of LIC.  This means that the value of all of LIC shares will change just as the investment shares do now.  While, in theory, the Board could set a price and issue and redeem shares at that price, this would expose LIC to an unsustainable level of financial risk.  

With the introduction of the spending bands, we also expect that most of the trading in the new LIC shares will be voluntary rather than customers buying shares because their spend is increasing, or selling because they are no longer customers.  After considering this, the Board came to a view that continuing with the market based pricing mechanism that is currently used for the investment shares would be the best course of action.  This will allow LIC customers to buy and sell shares amongst themselves whenever they wish and at a price they agree amongst themselves, either through private negotiation or on the share market.  

How will the share structure change? 

All existing co-operative shares and investment shares will be reclassified into ordinary shares.  At implementation, there will be approximately 124.3 million fully paid ordinary shares on issue (split between current investment and co-operative shareholders), and approximately 18.9 million nil paid ordinary shares (held by co-operative shareholders). 

Does the share standard change? 

Yes.  The share standard will increase by four times from the current level.  The nil paid shares issued as part of the proposal will count towards the new share standard, meaning that all current shareholders will be at the new standard from day  one (but with an outstanding payment obligation on the nil  paid shares). 

With the share standard increase, what will happen if I, as an existing customer, want to increase my spend with LIC?

If you own investment shares, these will be reclassified into ordinary shares and you can use them to meet your share standard obligations, so you may not need to buy any more shares.  We are also introducing spending bands (generally measured in $5,000) for assessing the share standard.  That means, you will not need to buy any additional shares unless your spending exceeds the top bracket of your band.  For example, if you are currently in the $15,000 to $19,999 band, and your spending goes from $15,500 to $18,500, your shareholding requirement will not change.  

Why have you introduced spending bands? 

Under the current arrangements, co-operative shares were automatically issued and redeemed by LIC each year to match the share standard.  Now that we are moving to a market based regime, we wanted to give you more flexibility and avoid the need for you to buy a very small number of shares each season as your spending changes.  To address this, bands have been introduced so you only have to buy more shares if you go from one band to another. 

Why have you changed the share standard to  a three-year average? 

We have done this because the increase in the share standard means it will cost more for customers to buy the shares they need when they become a customer or increase their qualifying spend.  Using a three-year average spreads this increase in cost over three years.  Of course, the share standard is the minimum number of shares that you must own so you are free to hold more shares (subject to a cap) or to buy any additional shares you need to meet the share standard at any time rather than waiting for the end of the three year period. 

How is the new structure going to be implemented  and what level of support is required? 

The structure is implemented by way of reclassifying LIC’s two classes of shares into a single class of ordinary shares through various changes to the constitution and other changes.  Taken together, ultimately, the approval of the whole process requires the support of 75% of shares voting in each class (co-operative shares and investment shares). 

Will there be an impact on existing LIC ownership and  voting limits? 

The existing 5% ownership limit for investment shares will apply to all shares under the proposal.  However, it is proposed that the 1% voting restriction is to be removed from the Dairy Industry Restructuring Act (DIRA) (and consequently LIC’s constitution) as the transfer of the National Database has been completed.  At this time we do not know when the DIRA change will occur. 

How does the Board expect to exercise its new powers to amend the share standard, minimum purchases amount,  and qualifying products and services?

The proposal introduces flexibility for the Board to make changes to these key concepts, subject to prior consultation with the Shareholder Council.  The Board has looked at  

other co-operatives and the proposed changes broadly replicate the flexibility that these other companies have in  their own constitutions.  It is not the Board’s current intention to make any changes to these definitions in the future (except for the changes outlined in the Notice of Meeting). 

Why was $4 chosen as the implementation price vs $3 say? Why wasn't the implementation price the market price of $2.25?

A description of how, and the relative values at which, the share simplification would be implemented and the advice from the Independent Adviser that supports the proposal is set out in the Introduction to LIC’s Share Simplification Booklet and the Notice of Meeting, which were sent to Shareholders and are available for download on this page www.lic.co.nz/vote.

Can you sell shares off market?

Yes, you can buy and sell shares directly from/to other shareholders.    

Can I still transfer shares between farms?

Yes you can, provided all farms continue to meet the minimum shareholding requirement. 

Why change the share structure as both classes of shares are not complaining?

During the roadshows in 2015 and 2016, LIC received considerable shareholder feedback from both classes of shareholders that the current share class structure may not be best for meeting the current and future needs of our co-operative and our farmers.  Under the current share structure, co-operative shareholders have greater voting rights but have limited exposure to the financial benefits of our recent transformation programme and future growth opportunities. Conversely, investment shareholders, whilst having a right to a greater share of the economic value created by LIC for its shareholders, have limited ability to control the strategy or direction that LIC takes to optimise that value.

This creates potentially serious conflicts between the two existing classes of shares. The Board believes these conflicts will worsen over time and that now is the time to address these conflicts given they will otherwise lead to issues for the on-going management and governance of LIC. The proposal will reduce this conflict, preserve LIC’s co-operative principles and allow us to focus on a strategy designed to benefit all shareholders equally.

The proposed share simplification is in the best interests of both classes of shareholders and LIC.

How will this help market liquidity?

Market liquidity is not one of the primary drivers for share simplification.  However, if the proposal proceeds, it will assist liquidity in a number of ways.  All fully paid Ordinary Shares will be listed on the NZAX, allowing shareholders to buy and sell shares on market.  All transactions to meet the share standard will be carried out among the shareholders, increasing the supply and demand for shares.  Previously, LIC issued and redeemed co-operative control shares, which were not listed, and shareholders were not required to hold investment shares.  

The timeframes for expected high periods of buying and selling shares have also been aligned to assist with liquidity, i.e.  those shareholders who have ceased to be a customer of LIC will be required to sell their shares by 15 October, which is also the cut-off for shareholders who are required to share up to meet the share standard.

Why not just convert each co-op share and each investment share into an ordinary share?

To ensure that the Proposal is fair to all Shareholders, it must be done in a way that reflects the relative rights and also the value of each class of shares.  The Co-operative Control Shares and Investment Shares have different values.  Co-operative Control Shares have a nominal value of $1 each.  Investment Shares are traded on the NZAX, with a price that fluctuates. 

The Board has determined its view of the relative values of the Co-operative Control Shares and the Investment Shares after taking external financial and valuation advice on the relative values of the Co-operative Control Shares and the Investment Shares.  The Board has attributed a value of $4 to each Investment Share for the purposes of the Proposal. 

For further details of how the share simplification would be implemented, why the Board chose to take into account the relative rights and values of the share classes,  and the advice from the Independent Adviser that supports the proposal, see the Notice of Meeting, which was sent to Shareholders and is available for download on this page. 

How will this structure help future capital raising?

The different rights attaching to different classes of shares creates potentially serious conflicts between the two existing classes of shares. The Board believes these conflicts will worsen over time and that now is the time to address these conflicts given they will otherwise lead to issues for the on-going management and governance of LIC.  The proposal will reduce this conflict, preserve LIC’s co-operative principles and allow the Board to focus on a strategy designed to benefit all shareholders equally. 

Can 11 guys own 55% of the co-op then?

Under the proposal, the existing 5% ownership limit for investment shares will
apply to ordinary shares post-reclassification.  Although it is theoretically possible the Board does not consider it to be likely to ever arise.  At the existing levels of shareholding, following the re-classification, the largest shareholder will hold around 2.2%. The Dairy Industry Restructuring Act currently also imposes a 1% voting cap on LIC shareholders, meaning that a shareholder holding 5% of the total shares will only be able to exercise the voting rights in respect of 1% of the total shares.

Will the board re-activate the DRP?

The DRP has been completed for the 17/18 season.  The Board has determined to suspend the DRP for the 18/19 season to enable the new share structure, if approved, to be implemented. 

How did we get the valuation of liability at $3 a share?

Co-operative shareholders will have liability of $1 per share on the nil paid shares they receive under the proposal.  These shares will have full voting and dividend rights.  These shares will be paid up through dividends received on these shares and other shares held to meet the share standard.

For further details of how, and the relative values at which, the share simplification would be implemented, and the advice from the Independent Adviser that supports the proposal, see the Introduction to LIC’s Share Simplification Booklet and the Notice of Meeting, which were sent to Shareholders and are available for download on this page. 

Has the co-op companies act changed to allow the reclassification to happen?

No – the reclassification is permitted by the existing rules under the Co-operative Companies Act and Companies Act.  Our legal advisers have designed the structure of the proposal to operate within the current legal framework.

How will the next generation afford to join the co-operative?

It is a relatively small cost to join the coop, and there is a return on the investment.  Under this proposal, all shareholders will have a vote and receive dividends based on profitability.  The LIC Board is concerned to ensure that the new share standard is not a become a barrier to joining the coop for young farmers and will be considering options to mitigate this risk.   The designed changes to the share standard also mean that the shareholding requirement is based on a three year average.   For new LIC customers joining the coop, this means they have no obligation to purchase shares immediately and have three years to share up.

This removes any immediate obligation for a Shareholder to trade at, or soon after, launch of the new arrangements.  The share standard will also be measured in bands, meaning shareholders will not need to adjust their holding unless there has been a material change to their spending.

The board does not want the new share standard to become a barrier to joining the coop and, should this prove to be the case, it will be considering options to mitigate this. 

Exactly how does the three-year average work for a new shareholder?

A new customer may apply to become a Shareholder once they exceed the Minimum Purchases Amount in any season.  Once a customer’s average expenditure on Qualifying Products and Services over the three preceding seasons exceeds the Minimum Purchases Amount, they will be deemed to have made an application to become a Shareholder and they must hold the Share Standard on the Compliance Date (15 October).  

Are the nil paid shares worthless?

The nil paid shares have full voting rights and full dividend entitlement.  The outstanding liability on each nil paid share is $1, irrespective of the market price of Ordinary Shares at any given time. 

How long will it take to pay the shares off?

The level of future dividends cannot be predicted, so it is not possible to give a definitive answer on how long it will take to fully pay up all your nil paid shares.

Do senior staff get shares as part of their rem? Are they free?

No senior staff do not get shares as part of their remuneration.

Why didn’t LIC tell me about investment shares?

LIC advises all shareholders about investment shares, but LIC staff are not financial advisors.

Where can I get investment shares from?

Through a broker on the NZAX platform.

Can farmers trade without a broker?

Yes, you can buy and sell shares directly from/to other shareholders.   

Can anyone be an investment shareholder? What about staff?

Only farmer shareholders and staff may be investment shareholders. Staff can buy up to 10,000 investment shares each (and the total holding under the employee share scheme across all employee participants is capped at 5%).

Is there a realistic expectation that the share price will rise?

Under the proposal, all fully paid ordinary shares will be listed on the NZAX after the reclassification (only the investment shares are currently listed). Market based pricing means all shareholders will participate in what we hope will be gains in the LIC share price as it successfully executes its strategy. The price of the shares will move up and down depending on how our farmers view the financial performance of LIC, usual demand / supply considerations, and broader political and macroeconomic factors.

How does the share standard work?

All existing co-operative shares and investment shares will be reclassified into ordinary shares. At implementation, there will be approximately 124.3 million fully paid ordinary shares on issue (split between current investment and co-operative shareholders), and approximately 18.9 million nil paid ordinary shares (held by co-operative shareholders). The share standard will increase by four times from the current level. The nil paid shares issued as part of the proposal will count towards the new share standard, meaning that all current shareholders will be at the new standard on implementation (but with an outstanding payment obligation on the nil  paid shares).

How did you value the co-op share compared with the investment share?

A description of how, and the relative values at which, the share simplification would be implemented and the advice from the Independent Adviser that supports the proposal is set out in the Introduction to LIC’s Share Simplification Booklet and the Notice of Meeting, which were sent to Shareholders and are available for download on this page www.lic.co.nz/vote.

Isn't this just a way to raise capital?

No.  While the process of share simplification itself will raise a small amount of additional capital, it is not the primary reason for the change. It is not the intention of the move to a single share structure to open LIC up to third party capital and, in fact, minimising changes to the co-operative structure is fundamental to the proposal.  The proposal does not make any changes to who can become a shareholder in LIC – it will remain owned exclusively by New Zealand dairy farmer customers of LIC (except for a small shareholding by LIC employees, as is the case now). 

If LIC wishes to introduce further equity funding from a third-party investor for LIC or LIC Agritechnology Company Ltd in the future, it would seek shareholder approval for it at that time.  However, LIC may acquire interests in other companies, make further minority or majority investments, and form joint ventures from time to time as it grows and diversifies the business.

Will all shares be tradeable on the market?

Under the proposal, all fully paid ordinary shares will be listed on the NZAX after the reclassification (only the investment shares are currently listed).

Can I pay my nil paid shares up early?

Yes.  For each nil paid share you own, an ‘investment’ of $1 will be required.  This will be paid up out of the dividend received on the nil-paid shares (and any other ordinary shares held to meet the share standard), except if you leave the co-operative at which time you will then have to pay up the outstanding balance.  You can also voluntarily pay up the outstanding balance at any time by notifying the co-operative. 

What are the tax implications for farmers of the nil paid shares?

LIC has obtained a binding ruling from Inland Revenue concerning the Proposal. Inland Revenue has ruled that: the issue of Nil Paid Shares as part of the Proposal, and the Reclassification of Co-operative Control and Investment Shares into Ordinary Shares, will not give rise to a dividend to Shareholders; and any revenue account Shareholders will not be treated as deriving income as a consequence of the Reclassification.  A full explanation of the tax implications for NZ Resident Shareholders can be found on Page 28 of the Notice of Meeting, which was sent to all shareholders and can be viewed at www.lic.co.nz/vote.

What are the tax implications for farmers of the dividends being used to pay the shares down?

Distributions received from LIC on Ordinary Shares will generally be taxable dividends for New Zealand tax purposes. Some distributions received from LIC may not be taxable dividends (for example, non-taxable bonus issues and certain returns of capital).

The tax treatment of dividends described above will apply equally to dividends that must be used to pay up a call on unpaid Shares received as part of the Reclassification. Such dividends will, like other dividends, be included in a Shareholder’s assessable income, with a credit allowed for attached imputation credits and RWT deducted. The cash dividend, net of imputation credits and RWT, will be applied in satisfaction of the call.

A full explanation of the tax implications for NZ Resident Shareholders can be found on Page 28 of the Notice of Meeting, which was sent to all shareholders.