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."
18 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.
Not quite sure what you're getting at, your comments can be obscure (you might say otherwise)
In another context Henry Ford initially only made one car for one market sector and then nearly went under. Admittedly that was then a dawning industry but it is nonetheless an example of a one big egg in one big basket strategy that Fonterra is adopting in producing only for the commodity market.
But those brands aren't outside the basket even now. And fonterras figures over twenty plus years read that those brands simply don't pull their weight and are only a small part of the basket. Fonterra are damn good at high volume high quality specialist products and that is set as their future.
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?
I don't work in any of those industries, although i did have a spell milking cows 18 or so years ago,
Prices increasing under Lactalis no it is not proof in any way. If the brand was so valuable as Fonterra promotes, why then do they see the need to sell it off?
The debate over the price of NZ made dairy products in NZ has been going on for years. The price consumers paid was based on the international returns, and bore no reflection of the actual production costs plus some small margin. As many have indicated NZ cheese is cheaper in the UK and Australia. What does that tell us - Fonterra and the supermarkets have been ripping consumers off for years.
Years ago when the dairy farms were in crisis the dairy farmers had a big publicity campaign to get the community to support them, That clearly only goes one way.
Lou it looks like you're a dairy farmer by your comments. I suggest you've just voted to cut your nose off to spite your face. What farmers have just voted for is the equivalent of workers asking for a payrise matching inflation of say 3%, but being offered and accepting a 1% rise and a $2000 lump sum. Looks OK in the short term, but will cost very much more in the long term.
Firstly, thank you for the response, Murray.
No, I'm not a dairy farmer. Sheep, beef, apples and pears is my farming background. And I have done a few other things along the way. I'm not one eyed agriculture but my roots certainly are in agriculture.
I am a staunch proponent of farmer cooperatives with scale (aka Fonterra, Zespri and the long departed ENZA), that present a single (or very near single) NZ export entity to the massive global companies that buy our agricultural products. For a country that exports 90%+ of it's major agricultural production, it is vital to have a strong seller that can guarantee contracted supply volumes and specified quality, on time.
The Kiwifruit industry is a salient lesson in the benefits of that approach. ENZA lost it's way a bit and instead of having a review and reset, vested interests (in my opinion) threw the baby out with the bath water, orchestrating deregulation. Now off shore interests control a big chunk of NZ pipfruit production.
For a long time, Fonterra and its Dairy Board predecessor have struggled to gain sustainable, acceptable returns from consumer brands. In my opinion, the consumer prices in NZ speak more of profit extraction through the retail sector, rather than at factory door. But i don't have analysis to verify that. Do you have information of costs and profits beyond factory door?
There has to come a time, in any business, to examine each cost centre and review whether to continue with low profit activities or not. Fonterra has done that, first with it's offshore production and processing investments and now with its domestic consumer brands.
The 8000+ farm business shareholders are not numpties. They have seen the wisdom in taking this gamble and I think the least likely outcome is a self inflicted bullet wound to the foot.
"The 8000+ farm business shareholders are not numpties."
No the vast majorty of them are not, but you do have to admit that what may be beneficial for those producers is not necessarily beneficial for the economy as a whole.
I don't understand what you are saying there.
Did the NZ banks being bought out by Aussie banks have to consider that? Watties (Goodman Fielder) selling to Heinz? Westland milk selling to Yili? Frucor to Coca Cola? The NZ insurance companies?
Lewis Road Creamery and Pams - only remaining NZ owned butter brands?
There seems some confusion over brands.
Pam's is a retail brand owned by Foodstuffs. They are neither a producer (farmer) nor a processor. The source of that milk or butter could be any dairy factory, not necessarily NZ owned or even based in NZ.
An alternate view is what Yili have done with the Westgold butter brand taking it international in scale with marketing savvy and great story telling. Local farmers have a profitable, sustainable processor to purchase their milk and secure the future of their own businesses.
I voted in favour of the Fonterra divestment after initially opposing the proposal. I will now have the choice of using the funds to purchase shares in a FMG company to maintain my exposure to branded dairy products or use it within our farming business to improve the performance of what we do best.
Does it feel like selling off the family silver? Definitely. However a slimmed down, much less complicated Fonterra may have more success than the previous model that made huge financial mistakes led by oversized egos at our expense. Now they need to focus on efficiency and innovation in everything they do.
Great contribution.
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