Editorial: Punching Above Our Weight
OPINION: With 10,500 dairy farms, New Zealand continues to punch above its weight around the world.
Fonterra's plan to turn around its disastrous investment in Chinese baby food company Beingmate won’t be smooth sailing.
This is because the Beingmate founder and cornerstone shareholder Sam Xie decided last month to take over as chief executive of the company.
The relationship between Xie and Fonterra chief executive Theo Spierings remains frayed, hindering the two stakeholders in their efforts to plan amicably to salvage the company.
Xie’s return after a seven-year hiatus is triggering a power struggle and rocking the board, according to Chinese media reports.
A vote was recently held to replace Liu Xiaosong, a retiring independent director who also chairs the audit committee, with Xie’s hand-picked director Ma Juan.
Chinese media report that all nine directors attended the meeting; six voted for Ms Juan, one voted against her and two abstained.
One Fonterra director of Beingmate, Johan Priem, voted against the candidate however, and another Fonterra director and head of its China operations, Christina Zhu, and Beingmate vice chairman He Xiaohua, abstained.
Fonterra said in January that four Beingmate directors, including the two designated by Fonterra, had reservations on some aspects of Beingmate’s financial management and reporting practices; this triggered a freefall in Beingmate’s share price and soured relations with Xie.
China dairy expert Jane Li says with Xie back at the helm, Fonterra will struggle to have any influence in Beingmate.
Li says a recent report in People’s Daily, the ruling Communist Party’s official mouthpiece, stated that Beingmate had seen Fonterra as a strategic investor to help turn around the company’s declining situation.
But since then, things have gone from bad to worse.
“Beingmate’s main problem is that the company hasn’t managed the relationship with its distributors well, so retailers and consumers have lost confidence and forgotten the Beingmate brand already,” Li says.
“The Beingmate/Fonterra JV is now being held up in state media as a ‘case study’ for all other Chinese dairy companies to learn from. The key learning point is that when Chinese dairy companies experience trouble, don’t expect investment from a foreign company to turn things around.”
She says three top Chinese dairy experts who spoke to People’s Daily agreed Beingmate has lost the confidence of its distributors, retailers and consumers, and the only solution is to regain that trust.
“One expert said at least the situation has bottomed out now, while another said Beingmate needs to start from scratch.”
Spierings says Fonterra lacks majority control in Beingmate and this is hindering efforts to turn it around. He says the co-op has been transforming its businesses around the world with great success. For example, its Australian business had lost money for years but returned to profit last year.
“We do know how to transform,” he says.
But Fonterra’s problem with Beingmate is that it only owns 18.8% of the company, whereas in Australia it owns 100% of the business.
“It’s easier to transform a 100% owned company than one where we only own 18.8%,” says Spierings.
“We have only 18.8% stake of Beingmate so we are not the only one at the table.”
Spierings says Fonterra is using its two directors on the Beingmate board to “protect the company going forward”.
Fonterra’s board has approved a $405 million impairment in its half-year results announced recently, valuing its stake in the infant formula trader at $204m. The co-op paid $750m for its stake in 2014.
