Fonterra to test trade sale and IPO for Consumer business

Fonterra says it will test the case for a trade sale and an initial public offer (IPO) for its Consumer business.

It has also lifted the midpoint of its forecast farmgate milk price for the 2024/25 season.

In an update, the dairy co-op said it continued to explore potential divestment options for its global Consumer business, as well as integrated businesses Fonterra Oceania and Fonterra Sri Lanka.

Chief executive Miles Hurrell said that, following a detailed scoping phase, the co-op had decided to proceed with a sale process for these businesses.

“Since our announcement in May 2024, we have been working with our team of advisors to assess potential divestment options, the assets and businesses in scope, and the best pathway to maximise value for our co-op.

“This work, coupled with the confidence we have in our revised strategic direction, has confirmed a divestment of our global Consumer and associated businesses is in the best interests of the co-op.”

The revised strategy would see Fonterra prioritise its Ingredients and Foodservice businesses.

Hurrell said the co-op had received “meaningful buyer interest” in the businesses.

“Through the scoping phase, we have assessed both a trade sale and IPO as attractive divestment options and will now prepare for a sale process which will pursue both options,” Hurrell said.

Advisers have been selected to assist in managing the process.

“We will thoroughly test the terms and value of both a trade sale and IPO with the market before seeking support from farmer shareholders for a divestment option through a vote.

“A final decision on which divestment pathway to pursue will be based on several factors, including which option will result in optimal long-term value for the co-op,” Hurrell said.

Hurrell said Fonterra would provide updates over the coming months on the programme.

He said the co-op “continues to target a significant capital return” to be made to farmer shareholders and unit holders following the divestment.

Meanwhile, Fonterra has raised the midpoint of the 2024/25 season forecast farmgate milk price from $9.00 per kgMS to $9.50 per kgMS.

Hurrell said the improved outlook had largely been driven by strong demand for reference commodity products, which has helped to push prices up in recent Global Dairy Trade auctions.

”This demand has been seen out of China, where there are indications that domestic production is below expectations, and also in Africa, the Middle East and Southeast Asia,” he said.