A raft of private equity firms are expected to line up for Fonterra’s Australia and New Zealand assets that it has on the market as part of a global sell down that may yield about $NZ4bn ($3.67bn) for the dairy giant.
The PE firms likely to run the ruler over the assets include Kohlberg Kravis Roberts, TPG Capital, CVC, Blackstone, Affinity Equity Partners, Platinum, Bain Capital and Pacific Equity Partners.
Fonterra is likely to net at least $NZ2bn for its Australia consumer, food service and ingredients business and New Zealand Fonterra Brands business that has been combined and rebranded in a new unit to be called Fonterra Oceania, say market experts.
Other global assets it has placed up for sale – those in Sri Lanka, Southeast Asia, China, Middle East, Africa and the Americas – could achieve a price in the ballpark of $NZ2bn and would likely appeal to global strategic players that are under-represented in these parts of the world.
These could include Lactalis, Nestle, Danone, Saputo, Arla Foods and FrieslandCampina.
However, for private equity firms, it will be Fonterra Oceania that would be the prize, not discounting that strategic players also bid for the unit.
TPG Capital looked at Murray Goulburn when it was up for sale in the past, while PEP weighed a purchase of Lion Drinks and Dairy.
New Zealand-based Fonterra, one of the world’s largest dairy companies that is listed in Australia and New Zealand, is now set to launch a beauty parade to appoint investment banks for the sale of the units that comes after fielding inbound approaches.
Earlier, it hired Jarden and UBS to float part of its $1.2bn Australian consumer business in 2021 (the deal was suspended when the initial public offering window closed) so they could remain well-placed.
But sources believe that a global bank would likely to be among those on the ticket, with major international dairy companies likely courted as buyers.
Other banks that Fonterra has worked with in the past are Morgan Stanley, which sold its South American operations in Chile last year to Gloria Foods for $NZ1bn, Goldman Sachs which sold its DFE Pharma business to CVC in 2020 for $554m and its Being Mate farm business in China, while Rothschild & Co, known for its credentials in the consumer sector and has a strong relationship with Fonterra, as does Deutsche Bank.
Sources say all the major buyout funds would be compelled to take a look at the Oceania offering because of the strength of the brands in the portfolio, the size of the deal and the ability to break up the portfolio and sell off valuable brands individually such as Kapiti ice cream, Mainland Cheese or Anchor milk, cheese and butter in New Zealand.
The listed Bega Cheese may look at parts.
Fonterra’s Australia and New Zealand consumer business that is on offer has been a strong performer for the dairy co-operative under the management of René Dedoncker, but the company no longer sees itself as the best owner at a time margins remain under pressure with rising milk prices in Australia and higher manufacturing costs.
Perhaps now Fonterra returns the proceeds to the farmer owners, delist from the public markets and return to being a New Zealand co-operative for farmers across the Tasman.
It told the market on Thursday that its focus was on being a business-to-business dairy nutrition provider.
Fonterra, which announced its global markets boss Judith Swales was departing as part of its strategic change, said that the sales could take at least a year to 18 months.
Fonterra in Australia sells mainly cheese and butter and its consumer food services includes brands such as Bega Cheese, for which it owns the licence to the trademark for some products, Perfect Italiano and Western Star and also is involved in the ingredients business.
The New Zealand brands business includes well known dairy brands across the Tasman such as Anchor butter, Mainland Cheese and Kapiti ice cream.
In 2019, Fonterra sold its iconic Tip Top ice cream brand to Peter’s ice cream owner Froneri for $380m through Jarden.
On offer is part or all of its global consumer business as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka, which comprises Consumer and Food services businesses.
It is as part of its focus on being a business-to-business dairy nutrition provider.
Fonterra announced the move would create a simpler, higher performing co-op without a focus on core ingredients and foodservice business.
Releasing capital by the asset sales would generate more value.
Collectively, the businesses in scope for potential divestment used about 15 per cent of the co-operative’s total milk solids and represented about 19 per cent of Fonterra’s group operating earnings in the first half of the 2024 financial year.
In the 2023 financial year, Fonterra’s ingredients business represented about 8 per cent of the co-operative’s New Zealand milk solids sold and returned $17.4bn in revenue by selling a range of products like milk powders.
Fonterra’s Foodservice unit represented about 13 per cent of the co-operative’s New Zealand milk solids sold and about $3.9bn in revenue by selling products like UHT cream, cream cheese and mozzarella to customers including restaurants, bakeries and hospitality businesses.
It has a strong position in greater China with further growth potential in other markets such as Southeast Asia, Fonterra said.
Its Consumer business represented about 7 per cent of the co-operative’s New Zealand milk solids sold and returned $3.3bn in revenue, selling every day products such as fresh milk, cheese and butter.
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