Fonterra and China's Beingmate have reached a provisional agreement to unwind their joint venture at Darnum, in Victoria.
A Fonterra spokesperson said the co-op had been looking at all aspects of its investment in Beingmate as part of a broader strategic review.
"This includes our Darnum joint venture. Fonterra and Beingmate have reached a provisional agreement on the key terms to unwind the Darnum joint venture," the spokesperson said.
Fonterra is expected to release more details of its plans for Darnum at its first-quarter update, due tomorrow.
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Beingmate earlier told the Shenzhen Stock Exchange it was terminating its agreement with Fonterra Australia and would sell its 51 per cent stake in the Darnum factory to Fonterra or an unidentified party.
Beingmate also said it has signed a cooperation agreement with Chinese state-owned investment company Great Wall Guorong Investment, adding to speculation Fonterra may be close to exiting its 18.8 per cent stake, having already taken a $433m loss.
The co-operative has hired Goldman Sachs to review its shareholding in the Chinese infant formula company.
Great Wall was founded by the Chinese Government to help cushion the impact of the Asian financial crisis by taking bad loans off the books of China's largest banks.
Beingmate is 34 per cent owned by Beingmate Group.