Communication to Fonterra Shareholders’ Fund Unit Holders

Market Announcement

28 June 2021

Communication to Fonterra Shareholders’ Fund Unit Holders

The attached communication was provided to Fonterra Shareholders’ Fund Unit Holders by the
Chairman, John Shewan, on 28 June 2021.

For further information contact:
John Shewan
027 450 7831

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28 June 2021


Fonterra Capital Structure Review – Update for Unit Holders

Background
FSF Management Company Limited (NZX, ASX: FSF), manager of the Fonterra Shareholders’ Fund (the
Manager, and the Fund), has noted Fonterra’s recent update to the market that Fonterra is continuing to
progress farmer consultation on the proposals Fonterra announced on 6 May 2021.

To enable this consultation to occur, Fonterra imposed a temporary cap on the size of the Fund by
suspending shares in the Fonterra Shareholders’ Market from being exchanged into units in the Fund from
6 May 2021. The Manager and its independent directors had no role in this decision, other than to be
briefed by Fonterra about it in strict confidence before it was implemented.

Fonterra’s communications with its farmers are at www.fonterra.com/capitalstructure and its most recent
market announcements are at https://www.nzx.com/companies/FCG/announcements.

Actions of FSF Management Company Limited as Manager of the Fund
As noted in a market announcement from the Manager on 6 May 2021, the Manager has formed a
subcommittee comprising solely its independent directors to consider the implications of the review for the
Fund and its unit holders.

The Manager has also retained specialist corporate finance adviser Simmons Corporate Finance, and
specialist legal advisers Chapman Tripp, to assist the subcommittee’s consideration of the impact of
Fonterra’s proposals on the Fund, and on unit holders of the Fund.

Fonterra senior management provided a further confidential briefing to the Manager’s board (including
both the Fonterra appointed and independent directors) on initial feedback from their consultation at the
Manager’s board meeting on 14 June 2021.

The independent director subcommittee then met with its specialist advisers on 14 June to further discuss
the review process, and consider the expert advice, following on from the subcommittee’s earlier meetings
in March and May 2021.

Further comments of Manager subcommittee
At the time Fonterra released its proposals on 6 May 2021, the Fonterra chair said “I want to be clear with
you that we expect this change to impact the price at which shares in our Co-op are traded, and that there
may not be as much liquidity in the market”.

The Manager notes that both the traded price of shares in Fonterra, and traded price of units in the Fund,
have dropped materially since Fonterra’s consultation announcement, and trading continues to be volatile.

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The Manager can give unit holders no assurance about the price or liquidity of trading in the Fund as these
are matters the Manager has no control or influence over. The Manager’s role is to manage compliance
with regulatory requirements and ensure that unit holders’ interests are managed in accordance with the
constituent documents that underpin the Fund.

The Manager reiterates that Fonterra’s consultation process is expected to take several months. Detailed
aspects of the proposal remain fluid, with farmers expressing a range of views, as described in Fonterra’s
recent updates to the market on 11 June and 25 June 2021.

Farmer support seems mixed on Fonterra’s consultation on whether farmers would prefer the Fund to be
bought back, or continue with a permanent cap.

Removing the Fund would involve an offer by Fonterra to unit holders to buy back their units at a fixed
price. The approval of at least 75% of unit holders entitled to vote and voting would be needed for the
offer to be accepted.

Fonterra’s consultation documents says that any Fund buyback offer amount “would need to be acceptable
to unit holders, fair to farmers and would need to make more sense to the Co-op than the Capped Fund
alternative.”

If there are indications of sufficient farmer support for a refined proposal, Fonterra aims for it to be voted
on by Fonterra shareholders at their annual meeting of Fonterra shareholders at the end of the year. The
annual meeting of unit holders of the Fund is likely to be held a few days later.

Implementation of a supportive farmer vote is expected to be conditional upon necessary changes to the
Dairy Industry Restructuring Act 2001 (DIRA) being passed.

A buyback would therefore require a buyback price to be negotiated between the Manager subcommittee
and Fonterra, for the Manager to make a recommendation to unit holders, and the approval of 75% of
votes of voting unit holders at a meeting called for that purpose. However, any buyback would not be
completed until the associated DIRA amendments are passed.

The Manager subcommittee will continue to monitor the situation and consult its advisers as the Fonterra
Capital Structure proposals evolve over coming months.

Yours faithfully.


John Shewan
Chair
FSF Management Company Limited, Manager of the Fonterra Shareholders’ Fund