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.
Dairy prices are stabilising, with the last five Global Dairy Trade auctions recording a lift in the price index.
Synlait managing director John Penno says it is feeling positive about the current market, and the forecast milk price reflects that.
“We start the season with some confidence that supply and demand are more balanced, and this forecast reflects an expectation of dairy prices remaining at current levels,” says Penno. “This announcement will be welcomed by our farmers.
“The start of last season was difficult, and we’re pleased market prices are in a much better position coming into the 2017-18 season.”
Last month, Fonterra announced an opening price of $6.50/kgMS, saying it was “a further signal of confidence in the market outlook for dairy”.
Synlait will release an update on the 2016-17 season on June 16, and its final milk price for the 2016-17 season will be announced in late September along with any update to its forecast milk price for the 2017-18 season.
Meanwhile, Synlait says it has bought Auckland infant formula maker The New Zealand Dairy Company (NZDC) for $33 million.
NZDC is now building a blending and canning operation at a site in Mangere; Synlait will take ownership of the site.
The plant will be infant formula capable, and will enable Synlait to substantially lift its blending and canning capacity. And it will give Synlait a high specification sachet packaging line suitable for infant formula and milk powders.
Penno says this purchase will allow Synlait to meet current demand, and provide room to grow to meet customers’ needs.
“Having a second blending and packaging site will also begin to mitigate some risk we have faced as a single site manufacturing company.”
The NZDC purchase cost Synlait $33.2m on acquisition, and it expects it will have spent a total of $56.5m once the plant is commissioned. An associated company which owns the land and buildings in which NZDC operates is part of the deal.
Synlait will seek Ministry for Primary Industries certification and People’s Republic of China (CNCA) registration for the new facility.
“The production line will be very similar to the blending and canning plant already operating at Synlait’s Dunsandel site -- same scale, high standards, equipment and build specifications,” says Penno.
Commissioning of the new facility is scheduled for October 2017.
