New Zealand’s dairy giant Fonterra Cooperative Group is creating the largest consumer dairy foods company in Australasia with the merger of its NZ and Australian consumer foods operations with those of Melbourne-based Bonlac.
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Included in the deal is Fonterra’s 50%-owned Australian subsidiary Bonland, a joint venture company created last September with Bonlac, its NZ Tip Top and Mainland businesses and its Australian Peters & Brownes operations.
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Fonterra will control 75% of the new manufacturing and marketing entity, to be called Australasian Food Holdings (AFH) and based in Australia. Bonlac will control 11.4% while two minority shareholders, and partners in AFH, Aorangi Laboratories and Calpa, own 7% each. With over 4000 employees, the new firm will generate annual sales of over NZ$2.3bn (US$1.1bn) on milk, ice cream, cheese, butter, yoghurt, processed meats and convenience foods
Fonterra CEO Craig Norgate also indicated yesterday [Monday] that AFH could be a springboard for acquisitions.
In a statement to the local stock exchange, Norgate said the consolidation would bring benefits of up to NZ$20m a year: “It is a very significant move that contributes to our objective to create the greatest value for Fonterra’s shareholders.
“The merged operation will be able to achieve further marketing and distribution strength that will benefit the organisation immediately.”
Norgate added that Fonterra regarded NZ and Australia as its “common home market” and that the interests of farmers in both countries are aligned: “Consolidating our assets in Australia has been a high priority for us.”
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By GlobalDataAt Bonlac, CEO Peter Myers said the deal would enable Bonlac to crystallise its investment: “It gives us critical mass by lifting the business above that NZ$2bn mark.”
Bonlac’s chairman Noel Campbell added: “We have also negotiated an option with Fonterra which gives Bonlac the ability to sell its shares in AFH and capitalise on the investment, if it so desires in the future.”
Sceptical shareholders?
Meanwhile, NZ’s largest dairy farmer group, New Zealand Dairy Farmers, said that it’s sceptical about the move because Fonterra could be simply propping up the new company. Chairman Kevin Wooding told ABC that his members are unsure about the benefits for them: “They put capital last year from the purchase by Fonterra of Bonlac into the payout, if they’re doing the same again this year, you know it’s living in a bit of a false paradise really.
“If we put some money into it, we’ve got to get some return, if we don’t get any return, we’ll be very concerned, so we want some return on our investment.”
National Foods plans?
Market watchers are now eyeing Auckland-based Fonterra to gauge the possibility that it might take over Australian listed firm National Foods, or sell its 18% stake in the firm. Norgate admitted that this move “will be greeted by the market as adding further fuel to speculation (about National Foods).
“We’re happy to let that speculation continue,” he said: “We have clear views on the various options we have got and in due course they will be revealed.”
