Fonterra is seeking equity participants in "Farm Co" - the holding company for the co-op's expanding farm hub base in China.
An information memorandum has been circulated.
Fonterra chief financial officer Lukas Paravicini says the dairy cooperative sees a huge opportunity in China for both upstream and downstream activities. It is targeting 1 billion litres of annual milk production (though CEO Theo Spierings' ultimate and so far unofficial target is 2 billion litres) to service growing demand for high-quality milk, which sells at a premium to Chinese-farm produced product.
"We are seeking partners for that," says Paravicini. "We believe we want to have strong local partners that help up to create the environment we need to be successful in the future."
He indicated Fonterra would seek to keep at least 51 per cent of the holding company ("we want to keep management control but not much more than that - that's our going in position").
For the equity participant there is value in co-investing with Fonterra which has proven capabilities in farming and processing - "typically our partners look at us as specialists in the domain".
For Fonterra there is also the ability to capture upside from the investment.
"Our game-play is having a holding company that will hold the overall investment and that might include a couple of investors who are knowledgeable in China or the region.
"That company would invest in individual hubs - the hubs could also have local specific partners."
Fonterra has confirmed there have earlier been talks with Cofco over forming a possible partnership at a global level.
But the "Farm Co" memorandum has also gone to big investment companies.
Paravicini says the process is now well under way and he is hopeful the equity partners will be confirmed this year.
Spierings has foreshadowed that Fonterra intends to appoint a Chinese advisory board, which will convene quarterly to talk about business performance, strategy and the big capital expenditures with potential big partnerships.
The chairman is likely to be Chinese; Spierings will be the deputy chairman.
"At 'Farm Co' group level we only want to deal with financial players otherwise it gets too complicated at the governance level,"' he says.
At the hub level, if Fonterra gives access to upstream high quality milk, "we would always talk to them on downstream distribution strength because we are 'business-to-consumer'."