It’s been almost a year since New Zealand dairy co-operative Fonterra placed its consumer business – the division behind Mainland and Perfect Italiano cheese and Western Star butter – on the auction block.
But the most obvious suitor has been uninvited from the party. Bega Cheese, the ASX-listed food and drinks business backed by the likes of billionaire businessman Andrew Forrest, is a non-starter despite obvious interest because it happens to be in a legal dispute with the seller.
Details of the stoush have started filtering out to investors, and they go to the heart of Fonterra’s hopes and dreams for the spin-off, which it has called Mainland Group. Fonterra and its advisors JPMorgan, Jarden and Craigs are exploring the possibility of both a trade sale and an ASX listing for the company, which could value the business at as much as $4 billion.
Bega Cheese reckons any spin-off of Mainland Group will trigger a clause in its deal that allows it to renegotiate or cancel the contract. Fonterra disagrees. Fonterra distributes and manufactures under the Bega Cheese brand, and there would be plenty of value lost if it was torn up.
For instance, some of Fonterra’s manufacturing sites are largely devoted to producing Bega-branded goods. So central is the Bega brand to Fonterra’s business that earlier this month it was front and centre for its latest campaign, describing Bega as the perfect late-night snack.
Needless to add, both Bega Cheese and Fonterra are sure of a win.
People briefed on the trade sale discussions, meanwhile, reckon it’s down to a two horse race. There’s France’s Lactalis, which is being advised by Rothschild, and Warburg Pincus, which has engaged UBS, in the hunt.
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. Two other interested parties, CVC Capital Partners and EQT, did not proceed after the Fonterra board became concerned about how farmers would react to finding themselves beholden to private equity giants.
The question is, how will farmers react to knowing a legal dispute has put paid to a potential bid from a seriously interested party in Bega Cheese?
Fonterra is, of course, pursuing not only a trade sale for Mainland Group but a potential listing on the ASX. Fund managers who have heard the pitch from management, however, are not convinced the IPO will be a go-er.
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