Fonterra agrees to buy NZDL milk processing factory

Fonterra's conditional agreement to buy the failed NZ Dairies plant from the receivers will present some farmers with a dilemma. The financial guarantee of being fully paid for milk sent to the plant in this past season and security of supply for the new season will rule with most suppliers and they will be grateful for that.

But the previous company was formed with farmers who decided to choose another ahead of the Fonterra service, and many will now find themselves back in the fold. A deal has been made with existing suppliers on meeting the shareholding requirements and a six year lead time to find the funds for fully paid up shares.

How the Commerce Commission will rule on this acquisition is yet to be seen, but with other bids reported to be only at bargain base values it appears this may be the best and only bid for farmers to get out of this plant failure with minimal losses.

What are your views on Fonterra's dominating move, or would you rather have seen another smaller player purchase this plant and at least keep some competition in the NZ market?

Fonterra confirmed today it has entered into a conditional agreement to acquire the milk processing assets of the New Zealand Dairies Ltd group in South Canterbury. The acquisition, which is subject to Commerce Commission clearance, would result in NZDL’s existing farmer suppliers being paid in full by the receivers and being able to have their milk processed and paid for from the start of the new dairy season which commences in a few weeks.

The Russian-owned dairy factory was placed into receivership on 17 May 2012. The receivers, Colin Gower, Stephen Tubbs and Brian Mayo-Smith of BDO Chartered Accountants, called for bids to buy the business and assets of NZDL soon after. Fonterra CEO Theo Spierings said the acquisition ensures that the Studholme plant continues to operate and its farm suppliers have certainty that they will be able to sell their milk on a commercial basis from the start of next season. 

“The Studholme plant is processing around 150 million litres of milk a year into milk powders for export,” said Mr Spierings. “It will complement our new Darfield plant which is due to start taking milk in August.“Our Strategy Refresh has clearly identified the importance of growing milk volumes and optimising our New Zealand manufacturing operations.  This transaction helps deliver on that priority.”

As part of the agreement, NZDL’s existing suppliers have been offered the opportunity to supply Fonterra on contracts, which will enable them to become Fonterra fully share backed after the 2012/2013 season and require them to be shareholders within six years.Fonterra plans to operate the Studholme plant up until the end of the 2012/2013 season pending a decision by the Commerce Commission on Fonterra’s clearance application. 

“This means that we are able to collect and process farmers’ milk from the start of the new season, avoiding the prospect of them having to spill milk,” said Mr Spierings.“The solution we’ve developed with the receivers will mean that suppliers who continue to supply NZDL have a tanker coming up their driveway to take their milk and ensures they still have an income.“It also means we are able to provide for continued employment to many of NZDL’s staff during this period.”