Fonterra will pay just $91 million to take total control of Australian dairy company Bonlac - a far cry from the $2 billion it was prepared to spend on National Foods.
The New Zealand dairy giant has confirmed it will raise A$85 million ($91 million) in capital notes to pay
for the 50 per cent of Bonlac that it does not already own. In April, Fonterra walked away from a bidding war for Australia's largest listed dairy company, National Foods.
The vast difference in price between the two reflects Bonlac's lack of profitability and the fact that it does not offer Fonterra the strategic gains it desires in the high-value branded consumer products market.
"This is a long-term strategic play for us," Fonterra chief executive Andrew Ferrier said yesterday. "For half of a business of this size, we think it's a pretty good price."
In combination with the purchase of Nestle's Dennington milk factory, it would be possible to get more efficiencies out of Bonlac and create a solid base in Australia.
But Ferrier played down suggestions the Bonlac purchase was a "Plan B" strategy in the wake of the failure to get National Foods.
He said the two big purchases announced this week were largely focused on the ingredients business.
They brought security of supply to the consumer products business which, in turn, presented opportunity for growth.
On Tuesday, Fonterra unveiled four steps it was taking to grow its business across the Tasman. As well as the Bonlac deal and buying the Dennington plant, Fonterra has purchased a Wagga Wagga-based consumer dairy business, Murrumbidgee Dairy Products, specialising in liquid milk, yoghurt and desserts.
Fonterra also outlined plans to consolidate all its Australian brands into the Fonterra Brands company.
Ferrier said Fonterra was looking for opportunities to grow its consumer products business in Australia whether they were big or small.
Fonterra's Australian consumer business was getting close to $1 billion, which it wanted to grow.
Bonlac Foods
* Bonlac is Australia's fourth largest dairy company and second largest dairy exporter.
* Fonterra owns it jointly with a Victorian-based co-operative of 1500 dairy farmers - the Bonlac Supply Co.
* In spite of revenues in excess of $700 million, it has been unprofitable lately.
* Restructuring costs took its net loss to $88 million last year.
* Fonterra hopes consolidating Bonlac with other Australian operations will reduce costs and make the company profitable.
Fonterra will pay just $91 million to take total control of Australian dairy company Bonlac - a far cry from the $2 billion it was prepared to spend on National Foods.
The New Zealand dairy giant has confirmed it will raise A$85 million ($91 million) in capital notes to pay
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