US remains important market - Fonterra
Fonterra says the US continues to be an important market for New Zealand dairy and the co-op.
Fonterra's proposed sale of its global consumer business could fetch over $3 billion but not all proceeds will end up in the pockets of farmer shareholders.
An independent report prepared by Northington Partners - based on information released by Fonterra to date on the proposed divestment - states that a full sale of the co-op's consumer business could reap between $3b to $3.4b or about $2/share.
While the report says most of any sale proceeds could be returned to shareholders, it will be influenced by a wide range of factors, including seasonal working capital requirements and expected capital expenditure.
Fonterra Co-operative Council chair John Stevenson told Dairy News that it's still early days and the sale could take several shapes.
Stevenson says the decision on any capital return would rest with the Fonterra board and, like the Soprole divestment and subsequent capital return, would depend on key financial factors.
"Fonterra has indicated that there could be a significant financial return, but I would caution farmers to count their chickens around the $3b figure."
Any sale of the consumer business - including household name brands such as Anchor and Mainland and Fonterra Oceania and Fonterra Sri Lanka - would require shareholder approval.
Stevenson says the council plans to keep farmers fully informed as when the co-op releases more information.
"There's a long way to go and farmers will need to vote and approve, it's a significant decision."
The council plans to provide farmer shareholders more independent reports from Northington Partners as more information is publicly available.
Fonterra announced back in May that the consumer businesses were being put on the block and said it was looking at a timeframe of 12-18 months to achieve a sale.
In a strategy update issued by Fonterra in late September, the co-op pledged a "significant capital return" if it achieves the planned asset sale. However, it has not quantified in dollar terms what the return might be. But Northington Partners, in its review, has given some clear indications.
Given the value of the businesses potentially for sale, the implications of the divestment for Fonterra and its shareholders "are significant", Northington Partners says.
"We estimate that Fonterra could return up to $3 billion of capital to shareholders assuming a full exit."
Northington points out that the potential sale of the businesses may result in an upward "re-rating" of the Fonterra share price depending on the price achieved and level of capital returned to shareholders.
"This is largely due to the potential scale of the capital return compared to the current share price (-50% of the farmers-only market price) while a sale would have less impact on earnings, only reducing by -20% (based on FY24 pro-forma estimates)."
Northington notes that Fonterra has committed to engage in further consultation with shareholders in relation to any potential divestment.
"We therefore expect that more information will be provided in due course including details on transaction structure, transaction value, use of sale proceeds (including the level of capital return to shareholders), implications for the brands, manufacturing and people and the ongoing relationship between Fonterra and the purchaser (e.g. milk supply arrangements)."
A global trade war beckons, which is bad news for a small open economy like New Zealand, warns Mark Smith ASB senior economist.
Carterton's Awakare Farm has long stood as a place where family, tradition and innovation intersect.
Fonterra says the US continues to be an important market for New Zealand dairy and the co-op.
Trade and Agriculture Minister Todd McClay says New Zealand's trade interests are best served in a world where trade flows freely.
New Zealand's red meat sector says it is disappointed by the United States' decision to impose tariffs on New Zealand exports.
OPINION: Farmers nationwide will be rubbing their hands with glee at the latest news from the Government about the RMA reforms.
OPINION: Is it the beginning of the end for Greenpeace?
OPINION: The good times felt across the dairy sector weren't lost at last week's Beef + Lamb NZ annual meeting.