Fonterra is close to reaching a deal with Argentina-based dairy co-operative SanCor, according a media report from Buenos Aires.
Argentine newspaper La Nacion reported that Fonterra was anticipated to finalise a deal with SanCor by the end of this month.
La Nacion, in a translated report, said Fonterra and SanCor would form a new company, of which Fonterra would have 80 to 90 per cent control. The remaining shares would stay with the dairy farmers in Argentina.
Last July, Fonterra chairman John Wilson confirmed the co-operative was in talks with SanCor but said discussions were at a very early stage. No comment was immediately available from Fonterra on the latest report.
The paper said it understood that the new entity will continue to trade under SanCor, rather than adopting the Fonterra masthead.
The deal comes at a time when SanCor is under enormous financial strain, La Nacion said.
The paper reported that SanCor owed 1900 individual creditors a total of NZ$101 million, accounting for a significant portion of the company's total debt. As part of the deal with Fonterra, these creditors have agreed to write off 60 per cent of the debt owed to them.
In addition, SanCor also owed banks and other creditors roughly NZ$67m.
SanCor's total debt at the end of last year sat at NZ$337m.
La Nacion reported that Argentina's department of economic development gave SanCor A$450m (NZ$30m) last year and A$250m (NZ$16m) to keep the company afloat.
SanCor has also received an undisclosed investment from Swiss investment firm BAF Capital, which specialises in Latin American investment opportunities.
Fonterra already has extensive interests in South America.
In Chile, the dairy giant Saprole is Fonterra's oldest offshore investment and is the best known corporate brand outside of Coca-Cola.
Fonterra is also a significant player in the US$26 billion-a-year dairy market in Brazil.
A Bloomberg profile of SanCor described it as a dairy farmers co-operative, engaging in the production and sale of milk-based products in Argentina and internationally.
It offers skim milk powder, natural or salt butter, gouda cheese, edam and cheddar. The company was founded in 1938 and is based in Sunchales, Argentina, Bloomberg said.
- Additional reporting by Damien Venuto