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).