With an IPO and a trade sale on the table, Fonterra is set to pit investors against strategic buyers. How may this play out?
The New Zealand co-op is in no hurry to part with its consumer division as the group explores an exit route for a business associated with power brands such as Anchor and Fernleaf.
First up, a pitch to investors to explore a potential IPO – but a trade sale remains an option.
Mainland Group – as the consumer division will be known if it’s floated – is being introduced as a ‘leading Asia-Pacific dairy platform that is well-placed to capitalize on attractive industry tailwinds’.
According to historical pro-forma financial information featured in the co-op’s presentation, this may be a fitting description.
In terms of gross profit, Oceania and Southeast Asia – the division’s two established markets – have posted stable or improving profits in the past three fiscal years.
And in emerging markets like Sri Lanka and MEA, growth has been even steeper, signalling future opportunities in the two regions for potential buyers.
All this and the fact that Fonterra is in no rush to complete the divestment makes for an attractive proposal – with a lucrative face-off between strategic buyers and investors all the more likely.
At the same time, Fonterra has upped its full-year earnings guidance from 40-60 cents per share to 55-75 cents, having also maintained a high farmgate milk price with a midpoint of NZ$10.00.
All eyes will be on the co-op’s annual results, released on March 20, 2025. But the strength of its milk price and the steadily improving earnings forecast gives Fonterra the upper hand as the dairy major explores the most suitable mode of separation for its consumer and associated businesses.
Windfall for farmers – and a nightmare for competitors
Fonterra CEO Miles Hurrell told the press that the co-op is going to decide whether to go for an IPO or a trade sale based on three factors: maximizing long-term value for farmer shareholders; expanding international channels to market; and cementing Fonterra’s position in ingredients and foodservice.
No matter which route is picked, a significant capital return is expected to be made to the circa 10,000 farmer owners when the deal eventually goes through – all while spinning out a major player with established manufacturing and distribution supply chains and a brand portfolio that could reshape the global consumer dairy landscape.
Who is leading Fonterra’s pitch?
Industry veterans René Dedoncker and Paul Victor – Mainland Group’s CEO-elect and CFO-elect, respectively – have been entrusted to take the co-op’s proposal to investors across New Zealand, Australia and Asia starting March 2025.
Dedoncker has been with Fonterra since 2006 and has held global leadership roles managing businesses and customers in more than 50 countries. He assumed the role of MD of Fonterra Australia in 2016 and became MD of global markets – consumer & foodservice, in 2024.
Victor has more than 30 years of experience across finance, treasury, tax, IT, M&A and investor relations – including more than 20 in leadership roles at chemicals and energy company Sasol.
What Miles Hurrell said
Fonterra CEO Miles Hurrell said the co-op’s decision to pursue a divestment is grounded in an understanding of where it creates the most value for farmers today and where there’s further room for growth.
“We are clear on our strategy and have a pathway to grow further value for farmer shareholders and the New Zealand economy through our Foodservice and Ingredients businesses.
“At the same time, we recognize the responsibility we have to find the right steward for iconic brands such as Anchor, Mainland and Western Star, and an ownership structure that allows these businesses to continue to grow.”
“We announced in November 2024 that we are pursuing both a trade sale and IPO as potential divestment options.
“Our intention is to thoroughly test the terms and value of both a trade sale and IPO before selecting an option to put to farmer shareholders for a vote.” Miles Hurrell, Fonterra CEO
“Ahead of that, we are today indicating the next steps that are required in both processes.”
On the investor meetings which commenced in March, he said these represent a important step, adding: “We are pleased to be making progress in both the potential trade sale and IPO processes and will continue to keep our farmer shareholders, employees and the market updated on milestones.”
In anticipation of the co-op’s annual results, Fonterra’s CEO said in February that the co-op has maintained its Q1 momentum – and “good pasture growth across most of New Zealand to date has meant our forecast collections for the season are up”.
The chief executive also appointed Richard Allen as president – global ingredients and Teh-han Chow as president – global foodservice and CEO for Greater China, as the co-op continues to gear up for a more B2B-focused future.
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