Fonterra Suppliers Confident in Mainland Dairy Future
Fonterra's 460 milk suppliers in Australia, who will switch to Lactalis end of this month, are unfazed with the impending change.
He says this would allow a possible buyer to realise material synergies – like distribution & marketing – through greater scale by adding the Fonterra brands to an already wide consumer brand portfolio.
“We aren’t particularly surprised at Fonterra looking to float the consumer business – it has been well flagged in previous communication,” Montgomerie told Rural News.
“This doesn’t necessarily mean we view it as the most likely outcome though. We think an outright sale is more likely.”
Fonterra has announced that it will be engaging with potential buyers for its global consumer business and integrated business units, Fonterra Oceania and Sri Lanka.
At the same time, the co-operative is preparing for a possible initial public offering (IPO), saying its intention is to thoroughly test the terms and value of both a trade sale and IPO before selecting an option to put to farmer shareholders for a vote.
Fonterra has chosen Mainland Group as the corporate brand for the group if it is to proceed with an IPO.
Fonterra Co-operative Council chair John Stevenson told Rural News that Fonterra farmers will be pleased to see an update on the progress of the divestment process.
“We look forward to seeing the outcome of this next stage where the value and terms of both the potential IPO and trade sale are thoroughly tested.
“It is important to note that farmer shareholders will have to consider and vote on any final outcome.”
Fonterra hopes for “a significant capital return” to farmer shareholders and unit holders following the divestment.
Fonterra farmers are forecast to receive a record milk price – currently $10.25/kgMS – for this season. A high milk price means increased cost of production for the consumer business.
But Montgomerie says they don’t think the current high milk price will deter buyers.
“It is unfortunate timing for Fonterra trying to sell the Consumer business with high milk prices, given the squeeze this places on margins, however, earnings within a single period shouldn’t detract materially from the underlying business value, particularly given capital employed in the ‘in-scope’ businesses is $3.4 billion.”
