Lactalis Buys Fonterra’s Global Consumer Business for $2.23 Billion

New Zealand’s Fonterra Co-operative Group Ltd on Friday agreed to sell its global consumer and associated businesses to the world’s largest dairy and the French multinational dairy products corporation Lactalis for $2.23 billion.

The transaction is 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 $2.23, there is potential for a further $217.81 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 $2.45 billion.

The Co-op is targeting a tax-free capital return of $1.16 dollars per share, which is approximately $1.86 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.

Deal Carefully Examined

Fonterra Chairman Peter McBride said that 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, he said.

“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,” McBride said.

Fonterra CEO Miles Hurrell said that the sale agreement represented a great outcome for the group. 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 Fonterra’s most significant 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,” Hurrell added.

Terms of 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 will be confirmed once the 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.

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.