Fonterra, New Zealand's biggest business, is preparing to sell iconic Kiwi dairy consumer brands such as Anchor.
Fonterra has taken its small China consumer business and a Saudi Arabia manufacturing facility off the sales table as the dairy multi-national enters the next stage of exiting its $3.4 billion global consumer products business.
After six months of assessing its options for divesting the businesses, as well as the integrated New Zealand and Australia brands’ business Fonterra Oceania and Fonterra Sri Lanka, the farmer-owned co-operative said it had decided to proceed with an initial public offering (IPO) and trade sale options.
An IPO would allow Fonterra to retain an interest in a divested business, and considering iconic Kiwi brands such as Anchor are involved, it could be a more political avenue for New Zealand’s biggest business to take.
Fonterra wants to prioritise its global ingredients and food service product businesses in a change of business strategy announced in May. Its co-operative structure also doesn’t make it a natural owner of a capital-hungry consumer business.
The global consumer business sells fresh milk, cheese and butter, with brands most prominent in New Zealand, Australia, Sri Lanka, China and Southeast Asia.
Brands include Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star and Perfect Italiano.
Fonterra said the company had made two small changes to the consumer businesses being considered for sale.
The “very small” China consumer business was out of scope due to its close ties with Fonterra’s strong Greater China food service business, while a Saudi manufacturing factory would also be retained.
Chief executive Miles Hurrell told the Herald the company had had “significant” interest in the prospects of sales of the businesses.
He declined to elaborate.
In a statement on Monday, Fonterra said a final decision on which divestment path to take would be based on several factors, including which option produced optimal long-term value for the co-operative.
Asked what “optimal value” looked like, Hurrell said in the next phase of the process, Fonterra would start to see interested parties indicating prices.
“From that, we’ll make the optimal decision for us. Not all purchasers will have the same terms and conditions. Someone may offer a purchase price over a long term, with different conditions versus a cleaner sale. Some of those sort of things is what we’ll talk about.”
Hurrell said Fonterra would not be “bound to a timeline”.
In the statement, the company said it would “thoroughly test” the terms and value of both a trade sale and IPO with the market before seeking support from its 8000 farmer-shareholders through a vote.
John Stevenson, chairman of farmer-elected shareholder watchdog the Fonterra Co-operative Council, said news Fonterra had decided to press on with a sale would probably not surprise farmers but it was helpful to get the update – and specifically around the two divestment options – on Monday.
The council has been asking for more information on the sale proposal for many weeks.
“The council certainly encourages Fonterra to be able to put in front of farmers the best option they can, before farmers vote on it. We encourage Fonterra to explore the options that will deliver the most value back to farmers, obviously with the preface that farmer-shareholders still need to vote on it.”
Asked if farmers would prefer an IPO or trade sales, Stevenson said the council had heard support for both. The company aims to make a “significant” capital return for farmer-shareholders and listed unit holders after the sale.
Shareholders are expected to pepper Fonterra’s directors and senior management with questions at the company’s annual meeting this month.
Hurrell said the company had decided to make Monday’s announcement on its decision to proceed with a sale process to give shareholders time to digest the news, because not all farmers would be able to attend the annual meeting.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.