Fonterra is looking to sell its consumer business to French dairy giant Lactalis. Photo: 123rf / Supplied images
- Fonterra shareholders asked to approve $4.22b sale of consumer brands business Mainland Group
- France's Lactalis to take ownership of well-known brands Mainland, Anchor
- Farmer shareholders in line for tax-free bonus, pump billions into economy
- Fonterra has multi-year contracts to supply Lactalis
- NZ First leader Winston Peters strongly critical of sale
- Meeting 10.30 AM, 30 October, result expected early afternoon
Fonterra's farmer shareholders look set to approve the sale of the co-operative's Mainland Group's consumer brands business, giving themselves and ultimately the economy a multi-billion dollar payday.
The $4.22 billion sale to the world's biggest dairy group, French-based Lactalis, was the final step in Fonterra's transition from would-be global dairy giant in multiple markets, to a slimmed-down New Zealand-based supplier of raw ingredients and high-value products to other manufacturers.
The company pondered a share float of Mainland, but opted instead for what was likely to be a more lucrative trade sale to Lactalis.
Fonterra chair Peter Mcbride had no doubts about the sale.
"The Fonterra board is confident a sale to Lactalis is the highest value option for the Co-op, including over the long-term ... [this] gives the board the confidence to unanimously recommend this divestment to shareholders for approval."
Fonterra chair Peter Mcbride. Photo: RNZ/Marika Khabazi
Yes vote for a big pay day
ASB Bank estimated the sale proceeds would ultimately be worth about $4.5b to the economy, with farmer shareholders receiving an average tax-free payout of about $392,000 if the sale went ahead.
Forsyth Barr senior analyst Matt Montgomerie said there was strong support for the deal from shareholders, despite initial apprehension.
"I've been around the regions recently doing various presentations, and I think the feel we get is that the vote should pass, and should pass somewhat comfortably," he said.
The chair of supplier organisation Fonterra's Dairy Farmers Co-op, John Stevenson, said there had been many robust and emotional discussions about the future direction of Fonterra.
Stevenson said just one of 27 dairy farmers on the co-op's council voted against selling off Mainland Group.
Among the concerns was a lack of detail about the long-term supply agreements with Lactalis, as well as an emotional appeal about the loss of famous New Zealand brands, including Mainland, Anchor, Kāpiti, and Fernleaf.
"Some of those (consumer) products are good brands because of the New Zealand grass-fed branding around the product," Montgomerie said.
Because Fonterra produced a significant volume of milk, he said it would be hard for Lactalis to get supply elsewhere, while the broad agreement was along the lines of other large supply agreements.
Increases exposure to global demand
Those opposed to the sale were also concerned Fonterra would be more exposed to the ups and downs of global demand for ingredients.
"It does mean that they don't have any significant levers to pull in the event of unforeseen circumstances, which in turn, I think means the board will take a more conservative approach to managing capital going forward," Montgomerie said.
However, he said the potential growth in Fonterra's Food Services and Ingredients business, particularly in Asia, could offset missed opportunities associated with the forecast future growth in the consumer business.
Fonterra had been allocating more milk away from the commoditised products offered on the global dairy trade, to earn higher returns on products, such as protein concentrates.
The backstory
Fonterra's plan to sell Mainland followed a strategic review, led by chief executive Miles Hurrell, who was hired to turn the business around following a number of loss-making years.
Fonterra chief executive Miles Hurrell. Photo: RNZ/Marika Khabazi
Saddled with debt, underperforming overseas businesses, and volatile commodity markets, Hurrell oversaw the sale of foreign assets to bring down debt.
The result was the end of costly adventures in Brazil, Chile, China and elsewhere, as well cost-cutting and the sale of non-core assets, such as ice cream maker Tip Top.
Fonterra decided a simplified, stripped-down business was the best option for New Zealand's dairy products.
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