Sydney-based private equity firm Pacific Equity Partners and Friesland Campina are understood to have made an unsolicited offer for either all or part of Fonterra’s brand and ingredients business late last year, say sources.
The New Zealand-based dairy giant that is listed in Australia last week appointed three investment banks – Jarden, Craigs and JPMorgan – to sell its dairy brands and ingredients assets, so far estimated to be worth about $3bn in total. The process is set to start before the end of the year.
Saputo and Bega are also anticipated to take a look at the offering, but it is likely to be difficult for both from a competition perspective, with doubts that Australian Competition and Consumer Commission would let a deal through.
Lactalis, based in France, would be well placed for the acquisition, and is believed to be interested, but private equity firms are not being ruled out.
In Australia, Lactalis has dairy brands including Pauls milk, Ice Break iced coffee, Oak and Breaka flavoured milk, Vaalia yoghurt and Lemnos, President and Galbani cheeses.
Globally, it has more than 250 production sites in 94 countries.
Kohlberg Kravis Roberts will likely take a look, but has invested heavily in consumer businesses so may want to diversify away from the space, while TPG Capital has looked at a number of consumer businesses but opted against deals.
PEP will almost certainly be in the picture, given its previous interest, while Friesland Campina has held a holding of at least 8 per cent in Synlait in the past and had been keen to amass more shares.
Melbourne-based private equity fund BGH Capital could also show interest, as could Asian funds including Bain Capital, Affinity Equity Partners, CVC, FountainVest and potentially PAG. A scoping study is now expected to get under way before progressing with recommended divestment options.
The assets flagged for sale by Fonterra on May 16 include its Australian consumer, food service and ingredients business, and NZ 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 Asia, China, the Middle East, Africa and the Americas.
Australian and NZ brands on offer include Anchor and Western Star butter, and Mainland and Perfect Italiano cheeses.
Earlier, 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.
Banks will likely assess all options for Fonterra, including running a dual track process, where it considered an IPO and a sale at the same time.
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.
Overall, the assets generate about $300m of annual earnings before interest, tax, depreciation and amortisation, but this fluctuates from year to year due to factors such as the milk price and earnings will depend on how a deal is structured.
Currently, Australian farm gate milk prices are higher than those in NZ in what has been described as an awkward dynamic.
Fonterra Oceania could sell separately, but, all up, the entire suite of assets is expected to have an asking price of at least $3bn.
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