Under the agreement, which is subject to regulatory approvals, Fonterra and Nestlé will "redefine the scope" of their 2003 50/50 joint venture, which more than 10-years on boasts milk powder and chilled and liquid dairy product manufacturing operations in Brazil, Argentina, Venezuela, Ecuador and Colombia.
Fonterra and Nestlé will continue their chilled dairy-focused DPA Brazil joint venture, but Fonterra will up its stake to a controlling 51%. The New Zealand-based dairy giant will will also join forces with a local partner to acquire Nestlé’s share of DPA Venezuela.
Meanwhile, Nestlé will acquire Fonterra’s 50% interest in DPA Ecuador, and DPA's milk powder manufacturing business, which includes facilities in Brazil, Argentina, Ecuador and Colombia, “will once again be owned and operated by Nestlé.”
As a result of the realignment, Fonterra expects to receive around NZ$96m in the next financial year.
No job losses
DPA, forged by an alliance between Nestlé and Fonterra in 2003, currently operates 15 manufacturing sites in the region and employs more than 4,000 employees.
In a statement, Switzerland-based Nestlé said it does not "anticipate job losses as a result of this transaction."
Giving reason for the realignment, Nestlé said that the decision to restructure their Latin American business better reflects both firm's current global strategies.
"For ten years, DPA has performed well, delivering value for consumers and for the partners. Now though, the time in right to realign the partnership to better reflect the respective strategies of Nestlé and Fonterra in the region," said the statement.
Fonterra reiterated Nestlé's stance, stating that the "revised alliance supports Fonterra's strategic focus on everyday nutrition in key growth markets such as Latin America, China, and Indonesia."
Healthy nutrition focus
In its recent 2014 interim results, Fonterra reported a "significant" 67% increase in earning from its joint venture with Nestlé.
Fonterra attributed the bulk of this achievement to its chilled and liquid dairy business in Venezuela which "managed to reduce losses incurred as a result of high inflation...through price increases."
DPA Brazil, which Fonterra will control a 51% stake in through the realignment, meanwhile "experienced higher raw material prices and operating overheads" that resulted in "lower margins and profitability in a highly competitive market."
Despite these challenges, Alex Turnbull, managing director, Fonterra Latin America, believes having a bigger stake in DPA Brazil will leave it "well placed to drive our volume and value growth strategy focusing on everyday nutrition offerings."
“The region’s economies have undergone considerable change during the past 10 years," said Turnbull. "We’ve seen increased prosperity in markets like Brazil with rapid urban growth and a focus on healthy nutrition driving demand for dairy products."