Fonterra has agreed the sale of its global Consumer and associated businesses to Lactalis for $3.845 billion, subject to certain customary financial adjustments and conditions including approval by farmer shareholders, separating the businesses being sold from Fonterra, and receipt of certain final regulatory approvals.
The sale comprises Fonterra’s global Consumer business (excluding Greater China) and Consumer brands; the integrated Foodservice and Ingredients businesses in Oceania and Sri Lanka; and the Middle East and Africa Foodservice business.
In addition to the base enterprise value of $3.845 billion, there is potential for a further $375 million increase from the inclusion of the Bega licences held by Fonterra’s Australian business, which if progressed would take the headline enterprise value of the transaction up to $4.220 billion.
The Co-op is targeting a tax free capital return of $2.00 dollars per share, which is approximately $3.2 billion, following completion of the sale.
As part of the sale agreement, Fonterra will continue to supply milk and other products to the divested businesses, meaning New Zealand farmers’ milk will still be found in iconic dairy brands including Anchor and Mainland.
Fonterra Chairman Peter McBride says over the last 15 months, the Board has thoroughly tested the terms and value of both a trade sale and initial public offering (IPO) as divestment options.
“Following a highly competitive sale process with multiple interested bidders, the Fonterra Board is confident a sale to Lactalis is the highest value option for the Co-op, including over the long-term.
“Alongside a strong valuation for the businesses being divested, the sale allows for a full divestment of the assets by Fonterra, and a faster return of capital to the Co-op’s owners, when compared with an IPO.
“This, coupled with the firm belief we have in Fonterra’s long-term strategy, gives the Board the confidence to unanimously recommend this divestment to shareholders for approval,” says Mr McBride.
Fonterra CEO Miles Hurrell says the sale agreement represents a great outcome for the Co-op.
“As the world’s largest dairy company, Lactalis has the scale required to take these brands and businesses to the next level. Fonterra farmers will continue to benefit from their success, with Lactalis to become one of our most significant Ingredients customers.
“At the same time, a divestment of these businesses will allow Fonterra to deliver further value for farmer shareholders and New Zealand by focusing on our world leading Ingredients and Foodservice businesses, through which we sell innovative products to more than 100 countries around the world, from our home base here in New Zealand,” says Mr Hurrell.
Lactalis CEO Emmanuel Besnier says “with this acquisition, we significantly strengthen our strategy across Oceania, Southeast Asia and the Middle East. Combining the Fonterra consumer business operations and market leading brands with our existing footprint in Australia and Asia will allow Lactalis to further grow its position in key markets. I'm delighted to become a key partner to Fonterra over the long term as well as I'm looking forward to welcoming new teams to the Lactalis family".
Terms of sale agreement
The divestment comprises the sale of shares in Mainland Group Holdings Limited, a New Zealand incorporated holding company that is currently owned by Fonterra.
The inclusion of the Bega licences held by Fonterra’s Australian business would be confirmed once a dispute with Bega Cheese Limited is resolved. If for some reason the Bega licences are not included in the sale, Fonterra expects to receive a fair value payment from Bega for the licences which would need to be determined at the time.
Under the terms relating to the sale, Fonterra will continue to supply raw milk, dairy ingredients and products to the divested businesses under long-term supply agreements.
Alongside shareholder approval, the divestment is conditional on final regulatory approvals being received from the Overseas Investment Office in New Zealand, the Foreign Investment Review Board in Australia, as well as relevant competition regulators and foreign direct investment regulators in certain countries including Kuwait, New Caledonia and Saudi Arabia.
In July 2025, the Australian Competition & Consumer Commission announced it would not oppose the proposed acquisition by Lactalis in Australia.
The divestment is also conditional on separation of the businesses from Fonterra and no material adverse change arising before completion.
Subject to satisfaction of all conditions, the transaction is expected to complete in the first half of the 2026 calendar year.
Shareholder vote and capital return process
Fonterra will now seek farmer shareholder approval to divest the businesses by ordinary resolution at a Special Meeting to be held in late October or early November.
The Notice of Meeting will be issued in early October and will contain information on the impact of the divestment on Fonterra’s financial shape as well as the proposed capital return.
Payment of the capital return would be subject to a separate shareholder vote following completion of the sale and receipt of proceeds in New Zealand. The amount of the capital return would be confirmed ahead of the capital return shareholder vote.
Fonterra’s outlook
Mr McBride says “the Board’s decision to pursue a divestment followed a strategic review, through which we examined the context we operate in, our strengths, and how as a Co-op we create value for farmers.
“By far, we do this best through our Ingredients and Foodservice businesses, which collectively generate the majority of our returns to shareholders through both the Farmgate Milk Price and dividends.”
Mr Hurrell says “the targets and policy settings Fonterra released alongside its strategy in September 2024, including an average Return on Capital of 10-12%, remain achievable if the divestment progresses.
“Fonterra’s previously announced FY25 earnings guidance of 65-75 cents per share remains unchanged and our FY26 earnings guidance will be announced as part of the FY25 Annual Results in September 2025.
“The Co-op expects its FY26 earnings per share to be presented on a continuing operations basis and exclude the performance of the Consumer and associated businesses during the pre-completion period.”
With the Special Meeting to occur in late October or early November, Fonterra has deferred its Annual Meeting from November 2025 to December 2025. A date for the Annual Meeting will be announced in due course.
16 Comments
$3.2B going straight into the nz economy from farmers!! Congrats all round, or something else
Can see farmers using this to clear a lot of debt. Some will flow into general spending but would be surprised if they just "spend" it all.
We will just be paying of debt. Will be doing the normal amount of R and D. Very little capital spending
So we no longer want to do the value add?
I don't remember what the figures are but I'm pretty sure historically those brands would have returned less than putting the $3.8b in a term deposit. Could be wrong
The purchasers are idiots?
No , more a reality check. For whatever reason, can't get the right people culture whatever, Fonterra has never done well at making money from these. The purchasers obviously believe they can because they have the right people, culture or whatever.
Presumably they are sold with contracts to supply raw products from Fonterra so fonterra still win.
"so fonterra still win" - yeah but without the value add.
We sell the raw product competing with every other country solely on price, while someone else makes that into a premium product and takes most the profit. Logs, dairy, meat, etc.
They are keeping their ingredients and foodservice businesses. Is that not more valuable value add than selling milk, cheese and yoghurt? After all they have been making more money from ingredients/foodservice than they have the consumer business.
If they do return the capital to shareholders I hope they don't just sit on all of it. The economy needs the shot in the arm.
Given just about everything that Miles Hurrell touches turns to gold - you've got to back him that he is making the right call here in the interest of farmers. Well done.
Big foreign companies run enterprises because New Zealanders can't.
We will remain poor.
Looks like deglobalisation of operations for Fontera.
Their foodservice and ingredients business is global
I raised my concerns with a very large corporate farmer about losing the branded business and becoming a price taker in the commodities business.
Their response was to take the proceeds and reinvest the money in shares in Nestle or Danone.
I guess that works for NZ dairy farmers but for the future of the NZ economy? It all seems short term profits at the cost of long term value. But isn't that our way.
I do agree with Redcows that Fonterra has never succeeded in this area. Very hard to have a high volume low margin manufacturer running a high margin offshoot with totally different culture and focus.
As a Farmer shareholder. My take is the farmer base isn't prepared to invest the dollars to make the consumer side work. They just want the dividends now. Heard from my bank manager a year ago. One farmer thought all the profit should go out in dividends because Fonterra had its balance sheet in order.
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