Under chief executive Miles Hurrell, Fonterra has sold an eclectic group of assets, raising over $7 billion in the process. Photo / Dean Purcell
Fonterra’s farmers have approved the sale of Mainland to France’s Lactalis, bringing to an end a programme that started in 2019 to radically streamline the dairy co-op.
Under chief executive Miles Hurrell, Fonterra has sold an eclectic group of assets ranging from an ice cream manufacturer to farms in China, raising over $7 billion in the process.
The transaction covers Fonterra’s global Consumer business (excluding Greater China) and Consumer brands; the Foodservice and Ingredients businesses in Oceania and Sri Lanka; and the Middle East and Africa Foodservice business.
The $4.22b sale to Lactalis – the world’s biggest dairy company – also involves some of Fonterra’s most recognised brands, including Anchor and Mainland.
The divestment would usher in an exciting new phase for the co-op, chairman Peter McBride said.
“We will be able to focus Fonterra’s energy and efforts on where we do our best work,” McBride said.
“We will have a simplified and more focused business, the value of which cannot be overstated.”
The Mainland transaction follows a string of big sales over the years.
Fonterra sold Tip Top to Froneri for $380 million in 2019, DFE Pharma to CVC Capital for $633m in 2020, holdings in Beingmate for $237m in 2020 and 2021, various farms in China ($640m) and Chile’s Soprole to Gloria Foods ($1.055b) in 2023.
Forsyth Barr senior analyst Matt Montgomerie said Mainland was “the last jewel in the crown”.
“This is the end of the simplification era and now it’s the focus era,” Montgomerie said.
The sale of Mainland still has some regulatory hurdles to clear but is expected to go through in the first half of 2026.
The co-op said 88.47% of the total farmer votes were in support of the sale.
Fonterra is targeting a tax-free capital return to farmers of $2 per share from the transaction and analysts estimate the deal is worth about $400,000 for an average farmer.
The co-op has long said the capital tied up in its consumer businesses would be better directed to its Ingredients and Foodservice businesses, which offer superior returns by comparison.
While $3.2b will be returned to farmers, Fonterra aims to retain about $1b to invest over the next three to four years in projects to generate further value through its remaining Ingredients and Foodservice businesses.
Montgomerie said Fonterra would become a more focused, leaner business as a result of the Mainland sale.
“While the brands are very well known in households across New Zealand, if you look back through history, the Mainland group portfolios only contributed 10 to 20% of Fonterra’s overall earnings, and in some years well below 10%,” he said.
“What we’ve been trying to emphasise is that while there may be an emotional attachment with some of the brands, in actual fact, the earnings composition of Fonterra isn’t materially changing.
“But it does leave Fonterra to increase the focus on those [remaining] divisions.”
Selling assets had been a successful pathway for the co-op.
“But looking ahead, there will not necessarily be those levers that it can pool or sell, should things dramatically change negatively,” Montgomerie said.
“As a result, I think the board will be more conservative around capital management going forward, just because it’s a volatile game that Fonterra operates in.“
The sale leaves the Ingredients side – mostly milk powders – and Foodservice, which makes products for bakeries and the restaurant trade.
Foodservice, particularly in China, has been a success story for Fonterra and the co-op could now focus more on diversifying that business into other parts of Asia, Montgomerie said.
In Ingredients, Fonterra had over time allocated more milk away from the commoditised products that “inform” the farmgate milk price to higher-margin products – protein concentrates, new UHT products and speciality powders.
“It’s important to recognise that while in some ways, the business is going to be less diversified, Fonterra is attempting to diversify what’s left,” Montgomerie said.
“And on the negative side, decisions like this don’t come without risk,” he said, adding the sale means Fonterra’s exposure to China would increase.
For Lactalis to earn the same level of return on capital that Fonterra does with the Ingredients and Foodservice businesses, it needed to roughly triple the earnings of the group that it is buying, he said.
“Lactalis clearly sees opportunities, hence the price they’ve paid, but it’s not necessarily going to be a free lunch for them to get the return on capital.
“There is no doubt that Lactalis will see meaningful synergy opportunities, whether that’s through marketing or distribution, greater scale in the Australian market, or just in general expertise in running brands all around the world.”
The Lactalis deal attracted some political pushback and some unfavourable letters to the Herald.
One critic, Foreign Minister Winston Peters, said the deal was “utter madness”.
“It is economic self-sabotage,“ Peters said on social media platform X, formerly known as Twitter.
“This is an outrageous, short-sighted sugar hit that is just giving away New Zealand’s added value to a company from a major EU country,” he said.
Fonterra was formed in 2001 after farmers voted in favour of merging the New Zealand Dairy Board, New Zealand Dairy Group and Kiwi Co-operative Dairies.
Since then, the co-op’s performance has been mixed and punctuated by ill-advised investments such as a stake in China’s Beingmate for $755m.
However, a slimmed-down Fonterra has lifted its performance in recent years.
In terms of world rankings, Fonterra has been slipping in terms of revenue.
Rabobank, in its latest annual Global Dairy Top 20 report, said Fonterra had dropped a notch to become the world’s seventh-biggest dairy company, while Lactalis had easily retained its top spot.
Denmark’s Arla moved up to sixth place in 2024, pushing Fonterra to seventh, Rabobank said.
After the Lactalis deal, the bank said in future years Fonterra was unlikely to maintain its current position on the list.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.