With the sums of money on the table, there was never really any doubt - but on Thursday Fonterra's farmer shareholders officially approved the $4.22 billion sale of the dairy co-operative's consumer brand businesses, including household names such as Anchor and Mainland.
The vote in favour was 88.47%.
Fonterra earlier this year announced the divestment of its consumer and associated businesses (recently styled as Mainland Group) to French dairy giant Lactalis.
Approval for the sale came through an online virtual meeting of shareholders. The meeting was brief, with no shareholders asking any questions. Fonterra expects the transaction to complete in the first half of the 2026 calendar year.
Another shareholder vote will be required for the payment of the capital return and Fonterra plans to provide more detail on the timing and process for the capital return in early December.
ASB economists estimate that the planned tax-free capital return of about $3.2 billion ($2 per share) to around 8,000 shareholding farms, should see over 60% of them get a minimum windfall of $200,000. They also estimate that the capital return would translate into roughly $4.5 billion in additional spending "once fully diffused through the economy".
Fonterra chair Peter McBride said in his address to the virtual meeting that the $4.22 billion price on the table from Lactalis "exceeds all of the initial independent valuations and estimates".
"The sale allows for a full divestment of these assets, is lower risk, and enables a faster return of capital to the Co-op’s owners. It is also significantly value accretive when compared with an IPO."
After initially announcing plans to divest the assets in May last year, Fonterra had earlier this year conducted a 'dual track' sale process that also included the possibility of an initial public offering (IPO) followed by an NZX listing of the shares. But the trade sale to Lactalis has offered a better deal.
McBride said Fonterra’s "relative success" in recent years comes from understanding where it has a comparative advantage that can deliver real value back to farmers through the milk price or earnings.
"The divestment will usher in an exciting new phase for the co-op. We will be able to focus Fonterra’s energy and efforts on where we do our best work and enabling the consumer brands to be fostered by a true global consumer giant for mutual gain."
He did, however, acknowledge the deal was not without risk.
"The ingredients supply agreement is not exclusive. There is a risk that, in time, Lactalis may choose a different supplier for some ingredients.
"Customer loyalty cannot be written into a contract forever. It’s earned. Lactalis is proud to partner with us for the long-term. They will be investing significantly in brands that are founded on high-quality Fonterra milk from New Zealand."
McBride said a number of shareholders had raised questions "around the risk of less diversification".
"Our geographic diversification is materially unchanged following divestment.
"Through our Ingredients and Foodservice businesses, we will continue to sell products derived from New Zealand milk to more than 100 countries around the world.
"And lastly, given it utilises less than 8% of our New Zealand milk, the Consumer business is not, and never will be, an effective hedge against the risk of milk price volatility."
McBride said the two most precious things in the co-op are the shareholders' milk and their capital.
"The far greater risk to our Co-op is continuing to put scarce farmer capital into lower returning Consumer products.
"Consumer is a riskier business. It requires much higher operational expenditure and is still well below our target return on capital.
"This whole process has been about strategy – what Fonterra can be the best in the world at. Then having the focus and discipline to deliver on that."
Fonterra CEO Miles Hurrell said Fonterra has plans to invest up to $1 billion over the next three to four years in projects to generate further value.
"Last week, we announced a $75 million expansion of our butter plant at Clandeboye, the first in this next phase of strategic investments.
"We have a pipeline for further projects that we’re assessing, and we’ll share details on these as they are confirmed.
"As Peter [McBride] has shared, a divestment of Mainland Group unleashes the Co-op, allowing us to focus on what we do best.
"Through focused execution of our strategy, we know that we can deliver greater value for farmers while also maintaining the financial discipline that has got us into the strong position we’re in today.
"Our business plans are designed to drive a performance lift in our Ingredients and Foodservice businesses and generate operational cost efficiencies."
9 Comments
This is in effect a betrayal of ordinary Kiwis who over the years, have been told they need to support farmers, by farmers.
this will inevitably cost NZ and Kiwis.
this will inevitably cost NZ and Kiwis
How? Was the sale of yellow pages to Canadians also a "betrayal"
The cost of the products will increase.
Yellow Pages hardly compares, but compare the before and after products and tell me if you think we benefitted from the sale? I don't think so.
Who buys the branded stuff anyway? Pam's milk is the same as Anchor isn't it?
Pams is a brand of Foodstuffs and therefore NZ owned.
It is now to function as if a stud farm that breeds nothing but stayers for three milers.
And so you mean that Fonterra was not ripping off consumers then
Spark/telecom sold the YP for top dollar, no guarantee that fonterra has but time will tell
What industry do you work in Murray86? What are the low profit/loss making services you provide as a benevolent service to consumers?
As a subsequent comment suggests, consumer prices will increase under Lactalis - isn't that proof then that all the individual farm businesses that make up Fonterra have been maintaining a benevolent position with the consumer product supply into the NZ market?
Do I hear you say "oh but they have the Dairy Industry Restructuring Act (DIRA)"?
If you think that has any connection to NZ market performance, you are deluding yourself. In Dairy products, NZ competition is the global market. Players with individual annual turnover multiples of NZ GDP.
Until you can come up with something that can surpass the export earnings capacity of the dairy sector, NZ absolutely needs the export scale and market power of Fonterra to keep your lights on.
Or is it that in your perception, farmers should be just peasants and only those beyond the farm gate permitted to profit of what farms produce?
Lewis Road Creamery and Pams - only remaining NZ owned butter brands?
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