KEY POINTS:
Fonterra plans to boost exports out of Chile after it takes total control of dairy company Soprole, which is based in the South American country.
The dairy giant has agreed to buy a 42.6 per cent stake in Soprole for US$201.9 million ($259.6 million) from Fundacion Isabel Aninat,
a charitable foundation run under canonical law.
The deal, which has received final approval from the Vatican, is expected to be signed in the next few days and would increase Fonterra's ownership to 99.4 per cent.
"What you'll probably see is us look to continue to export, increasingly export more product from Chile to customers in different parts of the world," said Fonterra's chief executive.
Andrew Ferrier said the buy would simplify decision-making and enable Fonterra to focus on growing the business.
Profit at Soprole was up 160 per cent last year to 23.8 billion Chilean pesos ($67.4 million), with the company returning on average about $25 million a year to Fonterra during the past few years.
The purchase will also give Fonterra an 86.2 per cent stake in Soprole's southern manufacturing subsidiary, Prolesur.
Ferrier said Soprole was focused primarily on brands, while Prolesur supplied ingredients to world markets. Together the two operations replicated Fonterra's New Zealand model.
"Farmers see that we need to be a multi-origin supplier if we want to have really powerful partnerships with our big customers globally. You can't do it by being a single-origin supplier."
Customers were reluctant to buy from only one origin because of risks including drought and biosecurity.
Fonterra's overseas manufacturing sites include Australia, South America, China and the US.
"So look for us to look a little bit more in the US as well," Ferrier said.
"It's all very complementary to our global strategy of being the supplier of choice to our major customers."
Fonterra has been reported to be bidding for Australian co-operative Dairy Farmers, but Ferrier would not comment on this yesterday.
He said that credit markets were atpresent very difficult but Fonterra still had some capability to raise funds for future buys. "If something came up we would go for it, the right thing, but it's got to be core to our strategy."
The increased stake in Soprole was strategically important.
"Chile has certain free trade agreements, for example, and we're now moving cheese from Chile to Mexico."
Chile is a member of the Trans-pacific Strategic Economic Partnership between New Zealand, Chile, Singapore and Brunei and has a free trade deal with China.
"Soprole is an example of Fon-terra's strategies of leveraging its cow-to-consumer expertise to build profitable businesses, and also securing new sources of fresh milk around the world," Ferrier said.
The dairy co-operative planned to make a bid for the remaining shares, but under Chilean law could not force a sale.
Fonterra Shareholders' Council chairman Blue Read said farmers were generally supportive of Fonterra's growth strategy.
"If these opportunities present themselves, you've got to make sure you're in a position to be able to take them and Fonterra's doing the right thing here."
PGG Wrightson chairman Craig Norgate, a former Fonterra chief, said the deal had been a long time coming and was a good move.
"Soprole's been, I guess, the jewel in the crown in terms of international investment for the dairy industry."