Fonterra sells Mexican cheese division

Fonterra has sold its poorly performing cheese business in Mexico to Sigma Alimentos - the food division of that country's second largest industrial group - for an undisclosed sum.

New Zealand Milk (Mexico) had 1500 staff and was the number one player in Mexico's $800 million cheese market but the business is likely to be worth tens of millions of dollars rather than hundreds.

Chief executive Andrew Ferrier said yesterday the sale of New Zealand Milk (Mexico) was not timed to free up cash for Fonterra's $1.5 billion takeover bid for Australian dairy company National Foods.

He said the two deals were unrelated and that the sale was timed to take advantage of consolidation in the Mexican dairy market. "New Zealand Milk Mexico was in the wrong market segment and its size was neither niche enough to be effective, nor big enough to be a real market presence."

While New Zealand Milk (Mexico) was nominally the market leader in the cheese category, the dairy sector in Mexico is highly fragmented with no one company controlling much more than 10 per cent of the market.

Last July, Ferrier identified the poor performance of Mexican cheese brands as one of the sources of New Zealand Milk's average annual result.

At the time, he said a new management team was being put in place to look at solutions.

Sigma, Mexico's largest processed meat seller, is buying dairy companies to create the nation's biggest milk products business.

In August, it bought a majority stake in Grupo Chen, a northern Mexico cheese maker with annual sales of more than $100 million.

With its focus on the consolidation of the Australian dairy sector and expansion in China, Fonterra was never going to be too active in a shakeup of the Mexican industry.

"Our best option was to sell the business," Ferrier said.

He said Fonterra's exports of milk powder to Mexico would be unaffected. Fonterra retains a presence in the Mexican consumer dairy sector through its Dairy Partners of America joint venture with Nestle. The sale is subject to regulatory approval.

* Fonterra's decision to extend the deadline for the National Foods takeover offer to February without lifting its offer price had the desired effect on the ASX yesterday. National Foods shares fell 5Ac to close at A$5.81.

Poor performer

New Zealand Milk (Mexico) had the largest share of Mexico's $800 million cheese market and the third largest share in spreads and butter.

Fonterra says the sale is timed to take advantage of consolidation in the Mexican dairy industry.

The cheese business had already been identified as a poor performer.

The sale will not affect Fonterra's exports of milk powder to Mexico.