Nestle deal will prove worth the wait, says Fonterra chief

By PHILIPPA STEVENSON

Fonterra had hoped to get a deal with global food giant Nestle by Christmas but is not unhappy with cracking it for Easter.

The alliance between Nestle, the world's biggest food company, and Fonterra, the largest dairy exporter, in the $230 billion dairy market in North, South and Central America was signalled last August after two years of exploratory discussions.

But it took six months of serious due diligence - three more than expected - for Fonterra chief executive Craig Norgate and Nestle executive vice-president Carlos Represas to be able to sign the joint venture into existence.

It is to be known as Dairy Partners Americas, and will have 10,000 staff from the existing businesses, and expected first-year turnover of $3.2 billion.

It took longer than expected, said Norgate, "but when you are putting together something that has to last forever you've got to be very careful about working through what happens if you do have disagreements further down the track.

"The key to sustaining it over the long term is to think very carefully about what would happen if you had to unwind it."

Regulatory approval had to be obtained country by country as each joint venture company was set up but Norgate said only in Chile, where both companies had substantial businesses, was it likely to be an issue.

Fonterra has only just got approval from the Indian Government for a joint venture between its consumer products division, New Zealand Milk, and Britannia Industries, announced about the same time last year as the Nestle deal.

Norgate said Fonterra and Nestle were "quite complementary" businesses in the Americas and would dovetail neatly together in Brazil, Argentina and Mexico, where Nestle had a strong market presence, and in Venezuela, where New Zealand was a major player.

Together they would dominate Latin America's chilled and liquid milk market.

The combined presence would also help secure existing business in other market segments, which were constantly under threat from competitors, he said.

Potential conflicts with existing customers had been mostly dealt with soon after the two companies announced their memorandum of understanding in August.

Dairy Partners Americas will cover branded chilled products and liquid milk, ingredient milk powders and milk management.

It will be governed by a joint supervisory board consisting of Norgate and Represas as co-chairmen, Fonterra deputy chief executive and NZMP managing director Chris Moller, New Zealand Milk managing director David Pilkington, Nestle senior vice-president Ajit Saran and Nestle vice-president Urs Scholer. It will be managed by executives from both companies. Fresh milk for the venture will be sourced in the Americas and dairy ingredients from New Zealand. Joint venture companies will use the most effective brands in each country.