Global dairy groups exploring Fonterra assets

Western Star is one of the Fonterra brands on the market.

With the request for proposals due out from Fonterra any day for bankers to compete for a sale mandate, the dairy giant’s rivals are starting to show their hands.

DataRoom understands global dairy groups have all confirmed interest in part of the Fonterra consumer and ingredients business that will be auctioned off.

Think Lactalis, Danone, Saputo, Arla, FrieslandCampina and maybe even Nestle.

However, when it comes to the Australia and New Zealand assets, the conversation is likely to centre around milk supply.

Those familiar with co-operative farming structures in Australia will be well placed, and even better placed are those that already have their own milk supply where the consumer dairy brands are on offer.

That’s groups like Saputo and Lactalis and FrieslandCampina and with their own milk supply it’s a different conversation than for those that don’t, with the economics being completely different.

It’s something private equity firms will no doubt have to think carefully about.

The Australian business of Fonterra is less lucrative than what is on offer out of New Zealand, where the milk supply cost base is low.

The New Zealand assets added to the Australian business offering sweetens the deal.

The sale process will net Fonterra billions of dollars.

But the assets may not attract a top price, with ongoing supply arrangements with Fonterra being key.

Canada’s Saputo is not having the best experience with its investments in Australia, where supermarkets hold much sway over price – and the soaring milk price has meant dairy processors are seeing margins squeezed.

Fonterra announced on May 16 it was selling its Australian consumer, food service and ingredients business and New Zealand Fonterra Brands in a new unit called Fonterra Oceania as well as its global consumer business and Fonterra Sri Lanka.

Other assets it has placed up for sale are those in Sri Lanka, Asia, China, the Middle East, Africa and the Americas.

Australia and New Zealand brands on offer are those like Anchor, Mainland, Western Star and Perfect Italiano.