Fonterra negotiates termination deal for Darnum JV with Beingmate

Fonterra's Anmum infant formula on sale in a supermarket in Hangzhou.

Fonterra has officially unwound its joint venture with Chinese company Beingmate, taking back full ownership of the Darnum manufacturing plant in Australia.

While the exact terms of the separation haven't been revealed, a Fonterra spokeswoman says the deal had been structured to ensure no cash was paid by the co-operative to Beingmate.

"Beingmate will remain a cornerstone customer of the Darnum site. As part of the agreement we have entered into a multi-year supply contract for Beingmate to purchase ingredients from us."

The original joint venture was created in 2016 as part of the broader partnership that saw Fonterra take an 18.8 per cent stake in Beingmate Baby & Child Food.

Fonterra paid about $755m for its Beingmate shares, while the latter paid A$102m for its 51 per cent stake in the Darnum factory.

According to a recent statement on the Shenzhen Stock Exchange, where Beingmate shares trade under a restricted ticker, the joint venture has a current book value of A$119m. That included land, buildings and working capital.

Continuous Disclosure understands that some amendments were made to the original joint venture agreement in April 2017.

This included a product purchase agreement that stipulated the purchase volume of the base milk powder from the plant that Beingmate sold was not less than 750,000 tonnes per year, or 51 per cent of the total annual production capacity of Darnum.

But sales volumes did not meet those expectations, meaning Beingmate had to pay a fixed compensation fee of about A$200m.

Beingmate then decided to withdraw from the agreement and Fonterra was happy to oblige.

Fonterra said taking full control of Darnum will give it more options.

"We will be able to look for new partners, improve efficiencies and produce the optimum product mix that creates the greatest value for our farmer-owners and unit holders," the spokeswoman said.

Meanwhile, Beingmate's share price is still languishing under 5 yuan despite the company's return to profit in the last two quarters.

Fonterra paid 18 yuan a share for its stake and has since written down the value of its investment by $433m.