Fonterra leaves market in the dust after Lactalis sale – Market close

Fonterra’s shares rallied after the co-op announced it planned to sell its consumer business to French dairy giant Lactalis, while the broader sharemarket ended weaker, driven by a decline in market leader Fisher and Paykel Healthcare.

The S&P/NZX 50 Index closed 151.3 points (1.15%) down at 13,042.76, with 63.78 million shares worth $144 million trading.

There were 90 falls and 48 rises on the main board.

In the big picture, international investors were focused on what US Federal Reserve Governor Jerome Powell’s message would be at this weekend’s symposium at Jackson Hole, Wyoming.

Expectations are Powell will indicate when the Fed will start cutting rates in the face of weak US labour data and in view of pressure from US President Donald Trump.

Fisher and Paykel Healthcare (FPH), which has the biggest bearing on the S&P/NZX 50 Index, ended 80c or 2% down at $37.65 after a strong run on Thursday.

At this week’s annual meeting, FPH said its outlook for the full year remained unchanged, with operating revenue in the range of $2.15 billion to $2.25b and net profit after tax in a range of $390m to $440m.

Fonterra’s shares, which can only be owned by farmers, rallied by 98c to $6 while the units, which are open to individual investors, gained 19c to $7.15 after the divestment news.

At $3.845b, the purchase price was above market expectations and would count as one of New Zealand’s biggest corporate transactions.

The market took some encouragement from Fonterra’s sale, which will put $3.2b, or $2 a share, into farmers’ pockets if it goes ahead.

“It looks to be a pretty good deal,” Hamilton Hindin Green investment adviser Jeremy Sullivan said.

“It was a very competitive bidding process and it certainly came out at the top end of analyst expectations.

“A tax-free capital return at $2 a share, that’s a decent amount of money that’s going back into the farmer’s back pocket.

“Lactalis is paying top dollar for these assets and it gives them the ability to build their own brands in this part of the world.

“It shows why it’s much easier to go out and pay a premium for a brand than it is to build one and compete in the same market.”

Dairy was the theme of the day with a2 Milk, which this week outlined a plan to buy Yashili NZ’s plant at Pōkeno, gaining 7c to $9.75.

Synlait Milk, which is about 20% owned by a2, gained 7c to 71c.

SkyCity Entertainment, which completed a capital raise despite opposition from Australian fund manager and cornerstone shareholder Allan Gray, dropped 20c or 22% to 71c.

SkyCity raised $159m from a non-renounceable entitlement offer and $81m from a placement.

In the long run, Sullivan said the Reserve Bank’s 25-basis-point cut in the Official Cash Rate to 3% this week would be supportive of the market, which has a high proportion of interest rate-sensitive stocks.

Looking ahead, results are due on Monday from Chorus, Tourism Holdings, Steel and Tube, Vector, Property For Industry and Scales.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.