This is the Press Release issued by Fonterra.
Fonterra is pleased to announce the divestment of its Chilean Soprole business. The divestment comprises a number of transactions that result in aggregate consideration of 591.07 billion Chilean Pesos (approximately NZD1.055 billion).
Fonterra CEO, Miles Hurrell, says that the divestment process for the Soprole business formally commenced in April 2022, following the launch of Fonterra’s strategy to 2030.
“A key pillar of our strategy is to focus on New Zealand milk. Soprole is a very good business but does not rely on New Zealand milk or expertise. We are now at the end of the divestment process and have agreed to sell Soprole to Gloria Foods - JORB S.A. (Gloria Foods).”
Gloria Foods is a consumer dairy market leader in Peru, with operations in Bolivia, Puerto Rico, Argentina, Colombia and Uruguay. Fonterra and Gloria Foods have a long-standing commercial relationship in South America.
The divestment comprises the sale of shares in a Fonterra owned holding company. Proceeds received by Fonterra at completion from the sale of shares will be subject to relevant adjustments including capital gains tax, working capital and net debt adjustments at closing, foreign exchange hedging costs, and other transaction related costs. The aggregate consideration also includes the receipt by Fonterra, prior to completion, of dividends from Soprole and intercompany debt owing to Fonterra, which will be repaid at completion.
The divestment is subject to a number of conditions. The material conditions are receipt of regulatory approvals (including from the competition authority in Chile) and commencement of an irrevocable public tender offer process in Chile for the outstanding shares in Soprole not already owned by Fonterra. Satisfaction of conditions is expected to take approximately six months.
Mr Hurrell says that Fonterra has a long history in Chile and is pleased to have reached agreement with Gloria Foods, which also has a proud dairy history in South America. Fonterra is delighted to pass on the Soprole business to a committed new owner with a strong regional focus on growth. Soprole’s success over many years and its market-leading position across a number of dairy categories in Chile, has been built on the dedicated focus of Soprole’s management team and staff, and the support of its supplying farmers.
Fonterra remains committed to targeting a significant capital return to our shareholders and unitholders. The Fonterra Board intends to make a final decision on the amount and timing of any capital return once the sale agreement is unconditional, cash proceeds are received in New Zealand and having regard to other relevant factors including Fonterra’s debt and earnings outlook at such time.
Fonterra’s previously announced FY23 earnings guidance will continue to reflect only the underlying performance of the Soprole business during the pre-completion period. Fonterra will provide an update on the overall impact of its divestment programme as part of its FY23 financial reporting.
Note: Assumed CLP to NZD foreign exchange rate of 560.
6 Comments
This is a good outcome. The company has been in steady decline during its long ownership by Fonterra which goes right back to Dairy Board days. The excellent price achieved is indicative of the potential that the new owners think they can capture and the buyer competition that they faced. Quite simply, Fonterra never had the necessary smarts to operate in Chile. Under their watch, Soprole declined from being the Number 1 company to being the Number 3 behind Colun and Nestle.
KeithW
A good outcome indeed, particularly relative to the China investment debacle.
What do you put the lack of smarts down to? As a shareholder I'm wary of the pr and spin that underpins governance and corporate culture that seems more about promoting group think than constructive dialogue. It seems as alive and well now as when Fonterra was blowing millions on expansionist projects. I realise the strategy has changed to focus on NZ milk, but when that occurred it was the only obvious choice given the dire state of our balance sheet. I just hope we're smart enough to meet the environmental and technological challenges coming down the line.
Omnologo,
I think it is very hard to operate close to consumers in countries that have different languages and culture. And to have success, the first requirement is humility and a recognition that simply transferring NZ systems is unlikely to be successful. Fonterra always had an air of arrogance as it tried to take on the world, and also a lot of the PR and corporate spin that you referred to, which only succeeded in fooling itself.
If I were running Fonterra, and given the proposed new capital structure, I would be inclined to hang on to the sale funds. As a co-operative, without easy access to new share capital, Fonterra needs the capital strength to be able to meet unforeseen issues in the coming decades. There may come a time when Fonterra will need to reconfigure its processing options and a minimal debt position would be a great way to start that process.
KeithW
Keith,
A very good question what they do with the proceeds given new capital structure and how farmers treat their shares longer term, including
after they sell out, retire..How long are they willing to hold their shares..an increasingly consistently growing dividend would make all happy.
Will Fonterra gain new farmers under the new regime? Certainly new capital could be easily gained from further outside investors if really
required...it is stupid that the FSF remains so inconsequential. You can just feel how frustrating it has been for the retired FSF Chairman John Shewan!
Personally I have been buying FSF shares as I think the possibility I finally adding value beyond the milk price is achievable long term, but really I am
surmising. Next months quarterly announcement by Fonterra will be very interesting as it should be exceptional. Can NZs most important company finally
deliver for shareholders alike both FSF and FCG? I look forward Keith, to your further wise comments regarding the dairy and ETS sectors.
A controlling shareholding was held by the Dairy Board going right back to 1986, and was transferred to Fonterra in 2001 when the Dairy Board was folded into Fonterra at that time. Fonterra then progressively bought out the other shareholders. So, there is no simple answer as to what Fonterra paid.
KeithW
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