Fonterra will sell its 50 per cent share in DFE Pharma as part of its strategy to gain more than $1 billion for debt reduction.
For Fonterra CEO Miles Hurrell it is an important milestone in the co-op’s plan to lift itself out of debt. Fonterra had indicated it was reviewing its share in DFE Pharma in March, he said.
Hurrell said: “[A]long with the significant inroads made in our capital and operational expenditure during FY19, makes for a good initial chapter in our business turn-around. It puts us on the right footing to deliver our new strategy and a sustainable lift in our performance.”
DFE Pharma was a joint venture with Royal Friesland Campina. It was identified for sale due to the substantial capital required for its future growth, a company statement said.
The company agreed to sell its DFE Pharma share for NZ$633 million to CVC Strategic Opportunities II, a fund managed by private equity firm CVC Capital Partners. CVC manages approximately US$83 billion of assets in 73 companies worldwide, Hurrell said.
The sale is made up of a cash payment of $537 million, payable on completion of the sale, plus an interest-accruing vendor loan of $96 million, for a term of up to 15 years. Built into the deal is a potential additional payment of up to $44 million based on DFE’s performance over two years.
The cash from the sale, along with proceeds from other asset sales this year, give Fonterra more than $1 billion.
Hurrell said: “We set ourselves a tough initial target for debt reduction and we are pleased with the progress we are making. It’s an important milestone in our Co-op’s plan to lift our business performance.
“A year ago, we started a full portfolio review to re-evaluate every investment, major asset and partnership, to make sure they were still right for the Co-op.
The sale is subject to receipt of regulatory approvals from competition authorities.
Hurrell said Fonterra was committed to the ongoing success of the DFE Pharma business through a long-term supply agreement and the interest-accruing vendor loan.
“A big part of the success of DFE Pharma has been the high-quality lactose produced by the team at Fonterra’s Kapuni site in Taranaki and it is a good outcome to be able to continue to supply this.”
In FY18 Fonterra recorded a loss of NZ$196 million, its first in its seventeen year history (Food & Drink Business, 14/09/2018).
In May, Fonterra sold its Tip Top ice cream business to Froneri, the ice cream joint venture between R&R and Nestlé, in a deal worth NZ$380 million (US$250.2 million) (F&DB, 15/05/2019)
And in June, the purchase by Mars of a majority shareholding in German active nutrition business, foodspring, resulted in a $64m windfall for Fonterra (F&DB, 28/06/2019).
In May it announced it would be closing its Dennington milk processing plant ni November, and in August it confirmed it would sell a portion of its 18.8 per cent share in Chinese infant formula manufacturer Beingmate for less than a third of what it originally paid (F&DB 24/05/2019, 07/08/2019).
