Fonterra kicks off $2bn-plus auction for assets

Fonterra is selling its consumer brands business, which includes those such as Western Star butter. Picture: Supplied

Fonterra has launched the process to sell assets, including its $2bn Australia and New Zealand business.

Interested suitors this week have been signing agreements to receive confidential documents about the business son offer through Craigs, Jarden and JPMorgan.

First round bids are due at the end of March.

The company is carrying out a dual track process, where it tests buyer interest and the possibility of an initial public offering in Australia and New Zealand.

The company confirmed it would move forward with a sale of assets which were flagged for divestment in May.

They include its Australian consumer, food service and ingredients business, and NZ Fonterra Brands in a new unit now named Fonterra Oceania, as well as its global consumer business and Fonterra Sri Lanka.

Australian and NZ brands on offer include Anchor and Western Star butter, and Mainland and Perfect Italiano cheeses.

It has placed other non-core assets up for sale in Asia, China, the Middle East, Africa and the Americas.

Fonterra hired Jarden and UBS to float part of its $1.2bn Australian consumer business in 2021, but the deal was suspended when the initial public offering window closed.

Fonterra has been seeking legal advice on a change of control clause on the Bega brand of products, and clarity around Bega’s rights from a legal perspective is expected shortly.

The $1.8bn Bega is understood to be a motivated buyer for at least some of the brands, but would likely need to bid with a joint venture partner, given the size of the transaction.

Among the strategic players which have so far shown some interest in the Fonterra assets are Lactalis, Friesland Campina and Danone, while private equity firms Kohlberg Kravis Roberts, Permira and Pacific Equity Partners have taken a look.

Fonterra’s Australian business is less lucrative from an earnings margin perspective than what is on offer out of NZ, where the milk supply cost base is low, say industry sources.

Currently, Australian farm gate milk prices are higher than those in NZ, in what has been described as an awkward dynamic.