Professional advisers close to being hired for ‘step-change’ in strategic direction.

Two months after Fonterra dropped the bombshell about its intended divestment of consumer plants and brands and all-country businesses in Australia and Sri Lanka, professional advisers are close to being hired.

Investment banks, legal advisers and accountancy firms have made proposals and  appointments will be announced soon.

After the advisory appointments it will take three or four months to report back on what is credible in terms of countries, locations, assets, potential buyers and types of divestment options.

When it was announced in mid-May, what Fonterra calls its step-change in strategic direction was expected to take 12 to 18 months to work through.

Fonterra’s managing director of co-operative affairs, Mike Cronin, was asked why the process takes so long.

The first step has been to bring an internal team together from mergers and acquisitions and legal departments, overseen by Cronin.

Phase 1 is a scoping study to work out what can be done and what can’t in the divestment structure.

Getting the design of the platform right will help a great deal in Phase 2.

Phase 2 will commence with a go-ahead from the board on the way forward, he said.

Meantime Fonterra is doing an in-house stock-take of the possible divestment businesses and their degrees of intertwining with what will remain.

“We need a due diligence on ourselves, including employment contracts, commercial contracts and relationships, intellectual property and trademarks,” he said.

Phase 2 will proceed with information memoranda on what is for sale, seeking expressions of interest from what Cronin expects will be long lists of inquiries.

“We then match with our intentions, go to a short list and work on conditional sale and purchase negotiations.

“There may be regulatory requirements, Commerce Commission approvals and almost certainly voting for approval by shareholders will be required.”

The assets and brands for possible divestment sit on Fonterra’s books at certain values, but those are only a starting point for negotiations on sale prices, Cronin said.

Fonterra will keep farmers informed when it has something to say.

“We don’t want to waste their time if we haven’t got much to say.

“For a while a lot goes on but there is nothing to talk about.

“A recommended transaction, in terms of purchaser and price, will require a shareholder vote.”

Meanwhile the “intensified” strategy to 2030 will be updated before the end of the year, as Fonterra highlights the 90% of the co-operative that will remain, assuming the divestment process concludes.

Cronin said that Fonterra’s growth in future will come from improved milk production on farms and innovation within the refocused and very efficient business-to-business strategy.

“We will focus on what we are really good at and do it better.”

The divestment intentions in both Australia and Sri Lanka are “end-to-end” from farmer-contracted milk supply through collection, processing and sale of consumer products.

Australian authorities and their dairy industry bodies will pay close attention and the Sri Lankan government will be involved.

The special position of the Fonterra Research and Development Centre in Palmerston North is intertwined with ingredients, foodservice and consumer foods and will require some unravelling.

Active living businesses and their innovation partnerships will remain part of Fonterra’s advanced ingredients division, being neither foodservice nor consumer foods.

“We believe we can grow further value by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and foodservice channels.”

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