Fonterra’s proposal to divest its consumer products business has been dealt a blow after a court said it could not rule out the chance the New Zealand dairy co-operative would have to renegotiate a long-running branding agreement with Bega Cheese if it proceeded with its plan.
The dispute about the future of the Bega Cheese brand, which Fonterra has licensed since 2001, has become a significant issue for the co-operative, which has been working on plans to sell its consumer division that owns Mainland and Perfect Italiano cheese and Western Star butter.
Fonterra’s lawyers had argued that the uncertainty about the state of the branding “could kill this transaction” and that “the price that is going to be put is going to be materially affected by this issue”. The lawyers had said prospective buyers “simply may not engage” if it was not resolved.
Bega Cheese, the ASX-listed food and beverage group backed by the billionaire Forrest family, is interested in acquiring the business, which is known as Mainland Group, but the stoush has left it unwilling to sign non-disclosure agreements to access confidential documents.
Fonterra, which is working with JPMorgan, Jarden and Craigs and has valued Mainland at as much as $4 billion, had asked the Supreme Court of NSW to declare that any divestment, or a spin-off into an ASX-listed entity, would not constitute a change of control. Bega Cheese can renegotiate the branding deal if a change of control is deemed to have taken place.
On Monday, the Supreme Court declined to make the declarations sought by Fonterra, although it said it could reconsider that once the co-operative decides whether it is selling the business or pursuing another proposal.
Fonterra had argued that it was concerned that “the likely price of any business sale will be jeopardised” if there was a risk that the Bega Cheese trademark could not be able to be used by a prospective buyer.
Fonterra “accepted that the particular details of the ‘reorganisation’ and ‘divestment’ are not yet known, and neither is it known whether there will in fact be a divestment”, Supreme Court judge Elisabeth Peden wrote.
“Fonterra submitted that there is utility in the specific declarations because they would allow it to continue testing the market for potential buyers, with certainty that there would be no change of control event triggered.”
However, Justice Peden ultimately decided that “until a particular restructure and a particular sale process are identified, it is not apparent that the specific declarations sought would be of any utility”. Fonterra had “no scheduled sale, nor restructure agreed by a purchaser”, she said.
In a statement after the decision, Fonterra said it was the co-operative’s “clear understanding” that the “provisions of its licensing agreement with Bega are not impacted by a divestment process”.
“The court has today decided that it is unable to determine this because there is not yet enough certainty about the outcome of the divestment process,” the company said. “This does not change Fonterra’s divestment plans for its global consumer and associated businesses and Fonterra may seek a court determination at a later date.”
The Australian Financial Review’s Street Talk column reported last week that Bega Cheese had not entered the auction process for Mainland Group because of the dispute, leaving only two serious interested parties. Those include France’s Lactalis, which is being advised by Rothschild, and American private equity firm Warburg Pincus, which has engaged UBS.
Dutch multinational FrieslandCampina also remains in the process, according to people across the discussions, although its level of interest is up for debate given it had intended on working with Bega Cheese.
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