The decision to sell was driven by a strategic review that revealed the best return on investment (ROI) was within Fonterra’s ingredients and foodservice divisions. While the consumer businesses were performing well, they were complex and expensive to manage and only utilized about 15% of the co-op’s total milk solids. In contrast, the ingredients channel alone uses around 80% of the milk output and generated the majority of shareholder returns through both dividends and the farmgate milk price.

The sale process was carefully managed, with Fonterra exploring both an IPO and a trade sale. Ultimately, the trade sale to Lactalis was deemed the best option as it would get capital returns into farmers’ hands faster than an IPO would. The deal, which also includes Bega’s cheese manufacturing licenses, ensures that Fonterra will continue to supply milk and dairy ingredients to the divested businesses, guaranteeing that New Zealand milk remains a core component of these brands.

The divestment is expected to deliver a significant windfall for shareholders, with a capital return of approximately NZ$3.2 billion. This will support Fonterra’s long-term financial objectives, including achieving an average Return on Capital of 10-12%. The move is seen as a way for the co-op to become more efficient and profitable, enabling it to focus on its world-leading, innovative products in the global market and deliver further value for its farmer-shareholders.