Miles Hurrell: Fonterra Chief Executive confident farmers will support $3.8billion brand sales

Fonterra is confident farmers will vote to sell major brands like Anchor and Mainland.  

It's reached a deal to sell its consumer and associated businesses to French dairy giant Lactalis for $3.845billion. 

The deal still needs the approval of shareholders. 

Fonterra Chief Executive Miles Hurrell told Heather du Plessis-Allan that the offer is above expectation, and there will be a $2 capital return per share.  

He says, while the public have a strong emotional connection with the brands - the feedback has been positive. 

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Fontira has agreed to one off, if not the biggest
sale in the country's history. French food group Lacdalise has
agreed to pay three point eight four five billion dollars
for the consumer business, including brands like Anchor and Mainland
Fonterira's share prices shot up nearly twenty percent today. Chief
executive is Miles Harrel High Miles afternoon. That so when
did you guys wrap up the deal?

Speaker 3 (00:38):
Very early hours this morning. It's been a long, long
couple of days for the team. But you're great, great
to put pen to paper earlier hours this morning.

Speaker 2 (00:44):
Here, yeah, wire you pleased to hear it when you
when you heard the final.

Speaker 3 (00:47):
Number, Yes, we were. I mean we've been, as I say,
working some long days to get to this point. There's
always a lot of detail behind the number itself. But
now really please and of course please to go to
a company like lack to Lease that have a strong presence,
global presence that we can work collectively with.

Speaker 2 (01:03):
Do you reckon the farmers are going to sign off
on it?

Speaker 3 (01:06):
Well? I mean, ultimately it's their call, but I think,
you know, it's a number that you know, above the expectations,
as you say, and the fact that we've already announced
that we'll go out with a two dollars capital return
to our farmers. I think those things will will help.
I mean, there's a lot, a lot of emotional connections
to these brands, not just used it in public, but
our farmers as well. So you know, they'll ask those
questions and we'll be out talking to them. But at
this point, the feedback I've had for farmers has all

(01:28):
been positive.

Speaker 2 (01:30):
It's been estimated that the average dairy farmer in the
white cutle we get about four hundred thousand dollars from it.
Is that about right?

Speaker 3 (01:37):
Yeah, that's about right. You know, it depends on the
farmers that are significantly bigger than that, of course, and
others on the other side, but yeah, that's about an
average farmer.

Speaker 2 (01:44):
I think, yeah, Trush, well I would say yes to that,
wouldn't you.

Speaker 3 (01:48):
Well, yeah, of course, but it's a capital return, so
it's not like it's falling from the sky. This is
capital I've had invested in the cop for a number
of years and so they're the questions that they ask.
But you know, it comes back to, you know, what
we've decided as a corporative that we're going to go after.
It's that ingredients business, that's food service, and we believe
that's where the returns are not just for now, but
into the long term, and so I think they'll support that.

Speaker 2 (02:09):
Part of the deal is a long term agreement for
Fonterra to sell milk and ingredients to these guys. How
long is that.

Speaker 3 (02:15):
For will they vary depending on sort of what products
we're talking about, But you know we've talked about the
fresh milk agreement, which you know goes into sort of
the anchor two leaders as will all know, there's a
ten year agreement behind that, so you know they're here
for the long term and our farmers should be pleased
with that, as should the New Zealand public.

Speaker 2 (02:32):
Part of the criticism of this is that you're backing
away from value added products, which we have for the
longest time being told is the key to New Zealand's
economic future. What's your response to that criticism.

Speaker 3 (02:42):
We have three key channels, you know, the food service
that out of home consumption that you buy in a
restaurant or a bakery, and the ingredients business and the
consumer which you buy in the supermarket, those three channels.
For since the cooperative's formation in two thousand and one,
that has been the lowest performing channel for a long time.
And so you know, there will be a variety of reasons.

(03:03):
That is an expensive business to maintain, you go to
continue to invest in it, and so probably some reasons
behind it. But we've shown for a long time that
our core business of collection, process and ingredients and that
food service business, you know, it returns above the cost
of capital for our farmer owners and that's for therefore
that too will put out our investment going forward.

Speaker 2 (03:22):
So now that you're getting rid of this particular part
of the business, where do you focus your energy more intently?

Speaker 3 (03:28):
Yeah, so it's that advanced ingredients, you know, and you've
got you know that the developed economies of North America,
Europe which are a Japan career, which are spinning more
on health and wellness, and that's right in our wheelhouse.
So that's where we'll go. And of course you know
China and Asia Pacific around that out of home consumption,
so you know, bakeries, restaurant chains, fast food is a

(03:50):
huge market still to be tapped in that rule.

Speaker 2 (03:52):
Well, isn't the argument here, Miles, actually that the advanced
ingredients is actually value added. Chopping up a block of
butter and sticking a wrapper on it is not really
value added.

Speaker 3 (04:02):
Well, that's that's sort of the argument. There's not a
lot of science that goes into into a block of butter.
That's the you know, we pray ourselves in the way
we farm and the taste profile and the functionality, but
you know that the ip that sits in behind you know,
a sports strength for for athletes or not even athletes
these days, but you know that the Joe public that's
out there going for a run or a bike ride.
I mean the science that goes into some of those proteins.

(04:24):
That that's where we believe our future is. And as
I say, that's where the value is for us now
and into the future.

Speaker 2 (04:29):
So is it too early to crack a bottle of champagne.

Speaker 3 (04:33):
Yeah, I've got a few more media calls to do
for the rest of the evening, and farmer calls are
in fat lad into the night, So too early for that,
But we'll see what the weekend holds.

Speaker 2 (04:41):
Good for you, Miles, enjoy it. Myles Hurrell, chief executive
at Fonterra.

Speaker 1 (04:45):
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