What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
He was commenting on the $288 million sale of Merino clothing company Icebreaker to the US based global apparel, footwear and accessory business VF Corporation. The US company also owns North Face, Vans, Wrangler and Timberlands.
“Icebreaker has the potential to become a global brand in the same way as Patagonia or other brands including North Face,” Lees, senior lecturer in agribusiness management, told Rural News.
“To achieve this Icebreaker needs significant capital investment in terms of opening new stores, product development and marketing.
“More importantly it needs the expertise and experience required to develop a global brand.
“This is lacking in New Zealand. NZ companies have generally struggled to do this and many have been burnt when trying to establish themselves internationally; examples are Michael Hill and Pumpkin Patch.
“So the main benefits are the expertise, investment and distribution channels to become a global retail brand. The [question] is do we want Icebreaker to be a small NZ-owned company or part of a larger global business?”
Lees says concerns about foreign ownership are not as significant as people think. “Icebreaker brand is inextricably linked to NZ and Merino wool,” he says.
“International expansion will increase the demand for NZ Merino wool which will benefit NZ Merino farmers.”
The brand will still be perceived as from NZ; brand image is what is being paid for in the purchase, he says.
“Like Apple computers, even though we all know they are made in China they are still seen as an American brand.”
With companies, often the value is in the brand and only the brand, he says. Developing an international brand requires huge investment in marketing. Even a company the size of Fonterra struggles to have major international retail brands, he says.
“The main concern is about profits going overseas. This is true though often NZ companies have significant debt which automatically [benefits] overseas lenders.
“Ownership means that both profits and losses go overseas. Profits will only go overseas if the company is successful.”
But Lees says the headquarters and staff will still be in NZ. The company will pay taxes in NZ as will employees. The company and employees will spend money in NZ benefiting other businesses.
Having a global iconic NZ brand internationally will lift the profile of NZ and benefit other businesses that trade on that image, e.g. tourism.
“Icebreaker has led the way in showing NZ food and fibre businesses how to move from commodity products to high value brands.
“The $288 million sale price will be $US that flow into NZ. This money will need to find a home and is likely to be invested in NZ.
“The sale provides an exit strategy for the founders and NZ companies have generally been unable to raise sufficient capital from NZ. An example is Synlait Milk that originally failed when it tried an NZ sharemarket listing.”
