'Bittersweet' moment for Fonterra as it sells iconic NZ brand to global ice cream company Froneri

'Bittersweet' moment for Fonterra as it sells iconic NZ brand to global ice cream company Froneri

Fonterra has sold Tip Top ice cream to global ice cream company Froneri for $380 million - which is about $100 million more than Fonterra's book value of Tip Top.

UK-headquartered Froneri, a joint venture established in 2016 between Nestle and what was R&R ice cream, is set to take control at the end of this month. 

The acquisition will be conducted through Froneri's Australian ice cream subsidiary Peters and so will not require Overseas Investment Office approval (as Australian businesses have certain exemptions when making investments here). 

The sale had been well signalled by Fonterra as the struggling New Zealand dairy co-operative looks to refocus its strategy and reduce debt levels.

Government coalition partner New Zealand First expressed "disappointment" over the Tip Top acquisition.  "If we are to build a value-added future for our economy, keeping the ownership of brands like Tip Top in Kiwi hands is critical,” NZ First Primary Industries spokesperson Mark Patterson said.

Fonterra CEO Miles Hurrell described selling the 80-year-old ice cream company as a "bittersweet" moment.

“Since we took ownership of Tip Top in 2001, a lot of work has gone into ensuring it remained New Zealand’s leading ice cream company. Over that time, we’ve had strong support from New Zealanders, and I want to recognise and thank them for that.

“Tip Top has always listened to consumers and cared about their changing tastes, as well as their long-time favourites. An average of 340 serves of Tip Top are enjoyed every minute of every day."

Hurrell said Fonterra had signed an agreement with the new owners to supply milk, "which ensures that Fonterra farmers will continue to be part of the Tip Top story".

Fonterra will also retain full global ownership of the Kāpiti brand and will be licencing its use for ice cream to Froneri. "This means our popular Kāpiti cheese isn’t going anywhere."

“I get the strong connection New Zealanders have with Tip Top. It will be important for them to see that it’s in good hands."

Froneri is described as the third largest ice cream manufacturer in the world, selling a staple of well-known ice cream brands in 20 countries. 

Froneri CEO Ibrahim Najafi says the Tip Top name and its operations, including the Auckland based factory site at Mount Wellington will be maintained.

“We have always admired Tip Top as New Zealand’s favourite and most trusted ice cream brand. The acquisition enhances our scale and supports our vision to build the world’s best ice cream company.”

The agreed settlement date is May 31, 2019 although there will be a transition period "over a number of months".

In the statement Fonterra made to NZX - though strangely not the statement it issued generally to media - Fonterra said it "expects there to be a number of one-off transactions and adjustments over the course of the financial year (some positive and some negative).

"The sale of Tip Top for $380 million represents a gain of around $100 million above book value, which would have a positive 6 cents per share impact on earnings.

"As Fonterra has other one-off transactions that are underway but not yet completed, such as the potential sale of DFE Pharma, it is too early to assess the overall impact of the Co-op’s divestment programme on its FY19 earnings."

Fonterra says that as previously stated, the announced forecast earnings will continue to reflect only the underlying performance of the business.

"Fonterra will advise any one-off impacts of a transaction on its FY19 earnings when that transaction is announced, and will provide details of the overall impact of its divestment programme on FY19 earnings as part of its full-year financial statements."

The co-operative has previously announced a targeted debt reduction in this financial year (to July) of $800 million, so, the Tip Top sale will be a big part of that. 

When announcing its half-year results in March, Fonterra said it was "well on track" to meeting the debt reduction target, with other assets on the block including its 18.8% holding in China's Beingmate and the 50% interest in DFE Farmer, which is a joint venture established in 2006 between Fonterra and FrieslandCampina.

Below is the full statement from NZ First. See this story for comments made by Acting Prime Minister Winston Peters. 

New Zealand First has today expressed its disappointment over the acquisition of iconic Kiwi brand Tip Top by Froneri, a European company owned in part by Swiss multinational Nestlé.

Founded in New Zealand more than 80 years ago, Tip Top is one of New Zealand’s most recognisable and trusted brands.

“If we are to build a value-added future for our economy, keeping the ownership of brands like Tip Top in Kiwi hands is critical,” says New Zealand First Spokesperson for Primary Industries, Mark Patterson.

Tip Top was acquired by Australian company Peters & Browne’s Foods in 1997, bought back by Fonterra in 2001, only to now return to foreign hands less than two decades later.

“Tip Top produces some 40 million litres of ice cream per year, helping capture value from New Zealand milk for New Zealanders. Now, those returns will disappear overseas,” says Mr Patterson.

“The sale also exposes the state of Fonterra’s underlying debt position following its acquisition of troubled Chinese food manufacturer Beingmate, now unable to provide the investment and focused ownership required for the brand’s continued success.

“The sale of Tip Top follows the foreign acquisition of other significant New Zealand companies capturing value-added opportunities, such as Silver Fern Farms. With Westland Milk also under offer from a foreign multinational, this is an alarming trend that New Zealand First will continue to oppose,” says Mr Patterson.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I understand sentiment has to be of little relevance when making business decisions. But in my experience when under (bank?) pressure the assets easiest to turn into cash are the ones long term you should be keeping and the 'dogs' are the ones you end up keeping - at the expense of long term success. Is Fonterra really in such a bad state we have to sell off the family silverware to keep food on the table?

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Going by experience; in a competition of ineptitude, it would be hard to call a winner between Fonterra and Auckland Council/Transport.

Hi nymad,

I couldn't agree more with you.

Well expressed - and right on the nail!

TTP

But that's kind of obvious, right? No-one wants to buy crappy assets.

And the corollary is, the well-performing assets (the silverware) can probably only get worse, so selling them at peak valuation may be a good choice. Whereas the crappy assets have a lot of scope to become better if managed properly, thus represent better prospects for increased company value down the line.

This requires that the company has the skills (and luck) required to turn the crappy assets around, of course.

shame they had to sell it
would like to know if the Chinese farms are on the block yet for sale

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Cheers TheeO, it's great you gave hundreds of millions away to the Chinese so the company now has to sell it's own assets just to cover some of those losses.

Be interesting to see how it goes. My understanding (limited/heresay) is that very little has been done in the way of upgrades in the 17 years or so that Fonterra has owned the plant. Not surprisingly there Fonterra can not afford to keep it and was really only selling the brands.
So sounds a good price
But as others mentioned, exiting China farms is the real must do .

Except that the price for those will be hammered if they try!

But it's a deep dark hole that is not going to stop swallowing money. EVER.

Hi David. Where does that place the Fonterra debt position as a percentage of market cap?

Customers will just have to suck it up and see whatever next. Unfortunately Fonterror has been creaming off the top and is now being milked itself and that state of affairs is a no brainer in business....tis a Rocky Road to nowhere....long term.
Tip Top they ain't been for sometime...Mostly at the Top. So .......they are selling assets.....to pay for others.............stupidity. I feel for the suckers and others at the bottom end of the company....The simple thing is I would have got rid of those creaming off the top. But then what do I know......I saw it first hand....Management did not know left from right, nor right from wrong......only knew how to milk it.

Well if Tip Top will be owned by Nestle I won’t be buying it anymore!

Sorry must have been a Double Dip..

Customers will just have to suck it up and see whatever next. Unfortunately Fonterror has been creaming off the top and is now being milked itself and that state of affairs is a no brainer in business....tis a Rocky Road to nowhere....long term.
Tip Top they ain't been for sometime...Mostly at the Top. So .......they are selling assets.....to pay for others.............stupidity. I feel for the suckers and others at the bottom end of the company....The simple thing is I would have got rid of those creaming off the top. But then what do I know......I saw it first hand....Management did not know left from right, nor right from wrong......only knew how to milk it. Fonterror...that is my pet name......As it was always a dog.

Creaming off the cow cockie...fonterra has reportedly 3 employees salaries to cover for each farm it has supply from...7500 farms ro fonterras 20000 employees...farmer only gets one of the four teets of the cow.fonterra and bankers the majority of the rest.(so my friendly Fonterra rep. relates to me).

I am getting fat so will be laying off ice cream for a long while. Else it'll be heading towards diabetes journey..no great loss...

No great loss and even if I did eat ice cream there are now better products in the market. A bit like beer really, the market has really changed from having to drink Lion Red.

What a state of affairs. Craig Norgate would be rolling in his grave.

Froneri ... Fonterra ... who the heck comes up with these ghastly company names ... methinks someone's gotten ahead of the legalise cannabis curve and is already deep in the wild wood weed ...

... so , Froneri have scooped up Tip Top ... because Fonterrible wasted $ 700 million or so , in China ... well , they're gotten about half that back ... meebee they could sell that big shiny new HQ the board had constructed for themselves , at the shareholders' expense , too ...

Whatever , the board of Fonterrible will remain as ever , creaming the company for their own benefit ...

If Sir Henry and the boys at the board table passed around a spliff or some other psychoactive plant extract we may have avoided paying tens of millions to obtain advice on tacky brand names and how to hemorrhage capital. Alas no, to wreak capital havoc like they have, I believe solvents and a brown paper bag was the order of the day.

https://www.youtube.com/watch?v=rY0WxgSXdEE

Nestle!? That's enough to put me right off

Maybe ice cream should go back to where it belongs, a decadent treat, eaten only occasionally http://www.duckislandicecream.co.nz/

I'm still angry at Rush Munro for completely destroying themselves in a re-branding. Their job was to stay the same forever, damn it. I question the business model of not making it available for sale anywhere.

Why the concern about selling Tip Top to Froneri? It had two foreign owners (Heinz Watties & Peter's Australia) before Fonterra acquired it. Fonterra still own the Kapiti brand.
Milk powder, butter, cream & cheese are the core businesses.

While that may be so, it just isn't the same. You know it started back in the 30s with one ice cream parlour in Wellington (I think), I wonder if Duck Island can repeat it, some of their flavours are divine, some a bit strange but the ice cream itself is really nice.

For many years now - Fonterra have had an objective of increasing their share of add-value market outputs.

Tip Top was no better example of what could be achieved.

Yet they went into new farms - god knows why - and Beijingmate - both of which continue to lose hundreds of millions - so they keep these and sell TipTop !

The exact opposite of their long espoused strategy of increased branded outputs.

As Buffett would say of this sort of management - failure seems to go their heads !

Time to look and list the directors who OK'd these totally mad strategies - advised all along on CEO appointments x 4 - and strategy - by no less than McKinsey for many tens of millions in fees.

This whole god forsaken mess will over time be seen as one of the very worst governance failures in NZ business history - and they are not out off the woods yet.

The board member responsible need to be listed and called out.

There should be no getting off the hook on a failure of this scale and then moving on via the old boy network to work their magic on other companies.

Its easy to work out which current Board members were on the Board at the time of the Beingmate decision. It was made in 2015. There are 3 current directors - Farmer elected-John Monaghan, Leonie Guiney and Appointed - Simon Israel. Clinton Dines was appointed in 2015 but wouldn't have been ratified until the 2015 AGM by which time the decision was already made. The longest serving farmer Director excluding the two aforementioned, is Donna Smit who was elected in 2016. Therefore the majority of farmer directors who are on the Board, have been there 3 years or less.