Fonterra chief executive Miles Hurrell says an initial public offering for the co-op’s consumer business was a live option right up until he signed off on its outright sale to French dairy giant Lactalis.
At $3.845 billion, the purchase price was well over market expectations and would count as one of New Zealand’s biggest corporate transactions.
The sale comprised Fonterra’s global consumer business (excluding Greater China) and consumer brands; the integrated foodservice and ingredients businesses in Oceania and Sri Lanka; and the Middle East and Africa foodservice business.
Hurrell said the sale process attracted widespread interest.
“We can’t get into who the parties were, but I think that the value that has come through suggests that it was a very competitive and contestable process,” he told a news conference.
He said an initial public offer (IPO) option was “on the table” right up until this morning, when the Lactalis deal was signed.
Market analysts have said a trade sale was the most likely outcome.
“A trade sale has come through and has added value that we feel comfortable with,” Hurrell said.
He said the trade sale/IPO options had been pursued in parallel.
“Of course we never got to an IPO but generally, a trade sale brings synergies together.”
Family-owned Lactalis has a strong presence in North America and Europe but less so in Asia and the Pacific.
The sale means Lactalis will control the Anchor and Mainland brands, along with several others.
Fonterra will retain the Anchor brand in China, where it has a big following.
Hurrell was asked if the sale would mean factory closures.
“That’s a level of detail we’re not sharing at this point in time, other than to say you don’t spend close on $4b with rationalisation on your mind,” he said.
The move means Fonterra can focus on business-to-business, ingredients and food service businesses, and Hurrell said the deal move would allow the co-op to go “harder and faster”.
Chairman Peter McBride said the transaction “starts one of the most exciting phases of Fonterra’s history”.
The sale, which has been over a year in the making, is subject to regulatory approvals.
A farmer shareholder vote will be held in late October or early November with a notice of meeting to be issued in October.
The co-op said it is targeting a tax-free capital return of $2.00 per share from the sale netting farmers a total of $3.2b.
The windfall will follow a period of very strong milk prices.
This week, Fonterra increased its farmgate milk price forecast for the 2024/25 season to $10.15 per kg of milksolids from $10.00/kg, and has narrowed its forecast range for the current season to $9.00-$11.00/kgMS.
The sale would include a long-term agreement for Fonterra to sell milk and ingredients to Lactalis.
Subject to the satisfaction of conditions, the transaction is expected to complete in the first half of 2026.
Fonterra’s 2025 earnings guidance of 65-75 cents per share remained unchanged.
Forsyth Barr senior analyst Matt Montgomerie said Fonterra had achieved a good price - well over market expectations of around $3b .
“We view this as a very good outcome for what has been a perennial under-performing business for many years,” Montgomerie said.
As part of the sale agreement, Fonterra will continue to supply milk and other products to the divested businesses, meaning New Zealand farmers’ milk will still be found in iconic dairy brands including Anchor and Mainland.
McBride said over the past 15 months, the board had thoroughly tested the terms and value of both a trade sale and initial public offering (IPO) as divestment options.
“Following a highly competitive sale process with multiple interested bidders, the Fonterra board is confident a sale to Lactalis is the highest value option for the co-op, including over the long term,” he said.
Alongside a strong valuation for the businesses being divested, the sale allowed for a full divestment of the assets by Fonterra, and a faster return of capital to the co-op’s owners, when compared with an IPO.
“This, coupled with the firm belief we have in Fonterra’s long-term strategy, gives the board the confidence to unanimously recommend this divestment to shareholders for approval,” McBride said.
Hurrell said Lactalis had the scale required to take the brands and businesses to a next level.
“Fonterra farmers will continue to benefit from their success, with Lactalis to become one of our most significant ingredients customers.
“At the same time, a divestment of these businesses will allow Fonterra to deliver further value for farmer shareholders and New Zealand by focusing on our world leading ingredients and foodservice businesses, through which we sell innovative products to more than 100 countries around the world, from our home base here in New Zealand,” Hurrell said.
Lactalis CEO Emmanuel Besnier said the sale would significantly strengthen the company’s strategy across Oceania, Southeast Asia and the Middle East.
“Combining the Fonterra consumer business operations and market leading brands with our existing footprint in Australia and Asia will allow Lactalis to further grow its position in key markets,” Besnier said.
The divestment comprises the sale of shares in Mainland Group Holdings Limited, a New Zealand incorporated holding company that is currently owned by Fonterra.
Australia’s Bega Cheese - a key customer of Fonterra’s - had been interested in the Australian assets and had challenged the sale process in court.
Fonterra said inclusion of the Bega licences held by Fonterra’s Australian business would be confirmed once a dispute with Bega was resolved.
“If for some reason the Bega licences are not included in the sale, Fonterra expects to receive a fair value payment from Bega for the licences which would need to be determined at the time,” Fonterra said.
Fonterra said there was potential for the purchase price to increase to $4.22b if Bega licences held by Fonterra Australia were included.
If Bega licences were not included, then Fonterra would receive a fair value payment from Bega, the co-op said.
Lactalis is the world’s biggest dairy company, with operations in over 50 countries.
The company already has 2500 employees in Australia.
Under the terms relating to the sale, Fonterra will continue to supply raw milk, dairy ingredients and products to the divested businesses under long-term supply agreements.
Alongside shareholder approval, the divestment is conditional on final regulatory approvals being received from the Overseas Investment Office in New Zealand, the Foreign Investment Review Board in Australia, as well as relevant competition regulators and foreign direct investment regulators in certain countries including Kuwait, New Caledonia and Saudi Arabia.
In July 2025, the Australian Competition & Consumer Commission announced it would not oppose the proposed acquisition by Lactalis in Australia.
If conditions are met, the transaction is expected to complete in the first half of the 2026 calendar year, Fonterra said.
Fonterra’s NZX-listed instruments rallied sharply on the news.
By mid-afternoon, the farmer-only shares were up 91c or 18% to $5.93 while the units, which give investors access to the co-op’s dividends, gained 29c or 4% to $7.25.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.