Bids reveal three-phase contest for Mainland

Advisers for Fonterra will create a bidding round after final offers land. Picture: Zoe Phillips

Fonterra’s $2bn-plus sale of its dairy brands spin-off, Mainland Group, is being expanded to a three-phase contest, say sources, with final bids currently landing.

DataRoom understands that advisers for Fonterra, including Craigs, Jarden and JPMorgan, will create a bidding round after final offers land, where a party or parties are offered what’s known as “black box” due diligence.

A black box due diligence round in sales processes offers a suitor or suitors access to highly sensitive information that would not be available in earlier stages.

It is believed any party taken into the last round will be given a substantial amount of information not available earlier to suitors, and that could last for about 10 days to two weeks.

Often, only one preferred bidder is given the access, and there’s an anticipation that Lactalis is in the top position.

Bidding in the final round are Bega Group, advised by Kidder Williams with its Citi-advised partner FrieslandCampina, up against Japan’s Meiji Holdings and Lactalis out of France.

The Rothschild-advised Lactalis, with brands like Oak, Pauls and Vaalia, wants the whole business.

It has gained clearance from the Australian Competition and Consumer Commission and has synergies with its existing Australian dairy operations.

Bega would need to raise equity to fund a transaction, despite having the best synergy benefits, and is out of sorts with Fonterra after refusing to give up its rights to take back its brands that are contracted to Fonterra if another party buys the business.

The contracts are worth about 6 per cent of revenue and the conflict over the commercial terms prompted Fonterra to exclude Bega from the data room in the early phase.

However, it already knows well the assets on offer.

The difficulty for Fonterra is that if another party wins, Bega is likely to litigate, prolonging an outcome. And if Bega wins, it would need to wait for ACCC clearance, which could still be denied.

On offer through Mainland, which generates about $200m of annual earnings before interest and tax, is Fonterra’s Oceania food services business as well as an ingredients business in Australia with food brands included like Bega, Western Star, Anchor, Mainland and Perfect Italiano.

Also in the offering are consumer and food services assets in Asia, the Middle East and Africa.