Fonterra strengthens bid for Australasian home market

By NZPA

Monday 1st July 2002

Dairy giant Fonterra has taken a major stride towards its goal of having an Australasian home market, by announcing a new Australasian consumer goods business today.

The new company is a merger between the consumer products wings of Fonterra and Melbourne-based dairy company Bonlac, a company in which Fonterra owns a 25 percent stake.

Today Fonterra chief executive Craig Norgate told a news conference he expected the new company would save $10 million to $20 million a year by reorganising the two companies' various consumer brands.

It would also create a strong platform for future growth in Australasia.

"We do see the interests of farmers on both sides of the Tasman as being aligned both with respect to that domestic market and importantly, the international market," Mr Norgate said.

"For that reason, consolidating our assets in Australia has been a high priority for us and what we're announcing today is a significant step forward in that regard."

Fonterra estimates the merger will cost about $200 million.

Mr Norgate said the new company would be the largest dairy consumer foods company in Australasia, twice the size of its nearest rival.

That would provide a "number of options" which could include the sale of Fonterra's 18 percent stake in Australian dairy major National Foods.

Today, however, Mr Norgate said he was happy to let speculation on that subject continue. France's Danone and Dairy Farmers of New South Wales with 10 and 9 percent respectively are each seen as probable buyers.

Under the name Australasian Food Holdings Ltd (AFHL), the new entity will employ around 4000 people and have annual sales of more than $2.3 billion.

It would bring together Australian businesses Bonland Dairies and Peters and Brownes with New Zealand businesses Mainland and Tip Top.

The new business would gain critical mass to bolster its business on Australia's eastern seaboard, or to make more acquisitions. Mr Norgate said he preferred to remain non-committal on the possibility that the new company could be public floated.

"We see it as an integral part of the wider business but I wouldn't exclude different forms of capital in the future."

Fonterra will own the lion's share of the new company -- 75 percent -- with Bonlac holding 11 percent and two minor shareholders, Aorangi Laboratories and Calpa, owning 7 percent each.

Aorangi and Calpa were partners in AFHL, a company which existed previously as New Zealand Milk's marketing arm in Australia. NZ Milk sells the branded consumer goods manufactured by Fonterra.

The new AFHL will absorb Bonland Dairies, a 50:50 joint venture struck between Fonterra and Bonlac last September.

While the new company would have strategic benefits, Fonterra farmer shareholders seemed unlikely to gain much monetarily.

"If you take the synergies we talked about, of $10-20 million, and take our 75 percent share of that, the potential there is of the order of a cent in payout in New Zealand," Mr Norgate said.

Benefits for Bonlac would be a strengthening of that company's balance sheet and stronger positioning, Bonlac said.

"We have also negotiated an option with Fonterra which gives Bonlac the ability to sell its shares in AFHL and capitalise on the investment, if it so desires in the future," Bonlac's chairman Noel Campbell said.

Fonterra has been positioning itself across the Tasman for some time.

In May Mr Norgate told a dairy conference that the New Zealand company now considered Australia part of its home market.

"A strong dairy industry needs a strong home market," he said. "The Dairy Board didn't have one and New Zealand alone doesn't provide the base needed ...We're now considering how best to organise our assets in Australia."

Fonterra's Australian assets include the Bonland deal, the Peters and Brownes dairy distribution network and icecream business in Western Australia, and its stake in National Foods.

Over the last year or so, Fonterra has notched up a number of other strategic partnerships, including a 50:50 alliance with Nestle to maximise opportunities in Latin and North America.

Other deals include a skim milk powder export deal in the US, and a partnership with Dairy Farmers of America to commercially manufacture milk protein concentrates in the US.

Mr Norgate said it had not been decided where the new company would be based. Peters and Brownes was based in Perth, Bonland in Melbourne, Tip Top in Auckland and Mainland in Dunedin.

Apart from a capital notes issue, Fonterra is still privately owned by more than 1400 farmer shareholders. It incorporates the former New Zealand Dairy Board and the country's formerly two biggest dairy co-ops, Kiwi Dairies and the Dairy Group.

Bonlac is still 75 percent owned by its 2500 farmer shareholders.

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