New Zealand’s Fonterra Co-operative Group Ltd is considering a trade sale or a stock launch (IPO) for its global consumer and integrated businesses.
The plan forms part of Fonterra’s long-term strategy to focus on its ingredients and foodservice offering and divest from its consumer and integrated businesses in order to create ‘a simpler, higher-performing co-op’.
Fonterra’s consumer brands include household names such as Anchor, Fernleaf and Western Star; but it’s the group’s ingredients and foodservice channels that generate the most value.
CEO Miles Hurrell said a sale had been identified as being ‘in the best interests of the co-op’ following a detailed scoping phase.
“Through the scoping phase, we have assessed both a trade sale and IPO as attractive divestment options and will now prepare for a sale process which will pursue both options,” the chief executive said in a statement.
Both options will be tested with the market before farmer shareholders are approached for support at a later date. The co-op will likely pursue the option that brings optimal long-term value, Hurrell said.
“We have received meaningful buyer interest in the businesses in scope for divestment, which is testament to their strength and potential,” the CEO added.
The sale expected to take between 12-18 months to complete and bring in ‘significant capital return’ to farmer shareholders and unit holders. Mike Cronin, former MD, co-operative affairs, is leading the divestment process full-time.
Strong commodity markets lift Fonterra's farmgate milk price
Why is Fonterra divesting?
Following a wider industry trend towards consolidation, the New Zealand dairy co-op announced it would focus its strategy on core, high-performing businesses while shedding non-core services. The group’s consumer business is also more exposed to milk price volatility and changes in consumer purchasing behavior compared to ingredients and foodservice, where the group has enjoyed stronger margins in the last few years.
Fonterra has also raised the midpoint of the 2024/25 season forecast farmgate milk price from NZ$9.00 per kgMS to NZ$9.50 per kgMS and narrowed its forecast range from NZ$8.25 - $9.75 per kgMS to NZ$9.00 - NZ$10.00 per kgMS.
This reflects continued strong demand for dairy commodities on the global markets, with Hurrell stating demand from China, Africa, the Middle East and Southeast Asia had helped push prices up in recent auctions.
“Looking ahead, we’ll closely monitor any factors that could have an impact on supply and demand," the CEO said. "This would include any significant change to milk supply in New Zealand over the second part of the season which could lead to pressure on global milk prices.
“We’ll also continue to utilize our scale and flexibility when it comes to optimising our product mix, including putting more of our farmers’ milk into the higher returning products to capture the value from every drop.”
