Fonterra lands big Nestle deal

By PAULA OLIVER

New Zealand's largest company, Fonterra, yesterday unveiled plans to join Nestle in what is being hailed as the country's biggest commercial deal.

Newly named Fonterra - the dairy company hatched when farmers voted for a mega-merger in June - will use a joint venture with Swiss food giant Nestle to enter the rapidly growing North and South American dairy markets.

The markets are estimated to be worth $US94 billion ($214.2 billion).

Latin America is the world's fastest growing dairy market.

The joint venture will cover stable shelf products, such as UHT milk, as well as refrigerated milk-based foods and beverages in supermarket chillers.

Fonterra spokesman Matthew Hooton said last night that dairy chiefs had been working on the deal for more than a year.

It was still subject to due diligence and regulatory approval, but could be up and running by the beginning of next year.

"Now that the uncertainty in our industry is over with the mega-merger going ahead, this kind of deal is possible," he said.

"Previously, it was very difficult to get a company like Nestle aligned."

The deal is the biggest announcement yet by the local dairy giant, which has set itself ambitious growth targets.

Nestle is the world's largest food company.

Its alliance with Fonterra makes it easier for New Zealand's newly created largest company to break into the valuable American markets, which encompass 13 per cent of the world's population.

By itself, Fonterra faced trade barriers and other hurdles that made entry difficult.

"We saw that our strategy for that region needed to be based on joint ventures, and we see Nestle as an ideal partner," Mr Hooton said. "They have been in the area for 100 years."

Mr Hooton said Fonterra saw a big opportunity to sell liquid and chilled products in the wealthy markets.

But it is not yet known if American supermarket shoppers will be picking up products carrying obvious New Zealand brands.

Due diligence discussions will decide which brands will be used on the shelves.

The Fonterra chief executive, Craig Norgate, said that Nestle had its own established and trusted dairy brands.

It was a long-standing and major buyer of New Zealand dairy ingredients.

"Our two companies will complement each other in what is without doubt New Zealand's biggest commercial deal," Mr Norgate said.

"It will be a partnership of equals which would not have been possible without the restructuring of our industry and the creation of Fonterra."

The joint venture will be run by a governance board with equal representation from both companies.

It will have co-chairmen.

Nestle chief executive Peter Brabeck-Letmathe said Fonterra had strong market positions in a number of countries throughout the Americas.

The partners say they hope to use increasing amounts of fresh milk bought locally in the countries in which their ventures will operate.

Other ingredients will come from New Zealand.