Dairy Industry Restructuring Act: Commission releases draft determination relating to annualised share value
The Commerce Commission today published its draft determination relating to setting the discount rate for calculating
Fonterra Co-operative Group Limited’s (Fonterra) annualised share value for the 2001-2002 season. This is a statutory
requirement under the Dairy Industry Restructuring (Raw Milk) Regulations 2001.
In its draft determination, the Commission has used a different methodology to set the discount rate to that proposed by
Fonterra.
Applying the Commission’s methodology results in a preliminary discount rate for calculating Fonterra’s annualised share
value for the 2001-2002 season, of 11.7 percent. This compares with the discount rate proposed by Fonterra of 8.25
percent.
The Commission’s draft determination, which includes reasons and a table comparing the different methodologies used by
the Commission and Fonterra, is available on www.comcom.govt.nz (select Dairy Industry Restructuring Act, Commission Decisions).
The Raw Milk Regulations require the Commission to set a discount rate for calculating annualised share value in
circumstances where Fonterra does not use a cost of capital rate in calculating the price of a co-operative share.
Fonterra advised the Commission in June 2002 that it did not use a cost of capital rate for the 2001-2002 season. The
share price for that period was $3.00 per share and was agreed as part of the Merger Proposal for the merger of New
Zealand Co-operative Dairy Company Limited and Kiwi Co-operative Dairies Limited. The Commission invites submissions
from any parties who consider they will be affected by the determination. Submissions close on 28 February 2003. After
considering the submissions, the Commission will release its final determination.