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 (00:00):
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
Fonterra's share prices shot up nearly twenty percent today. Chief
executive is Miles Harrel High Miles afternoon of that, So
when did you guys wrap up the deal?

Speaker 2 (00:21):
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 early hour this morning here.

Speaker 1 (00:28):
Yeah, were you pleased to hear it when you when
you heard the final number?

Speaker 2 (00:32):
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 it to go
to a company like Lackdalise that have strong presence, global presence,
that we can work collectively with.

Speaker 1 (00:46):
Do you reckon the farmers are going to sign off
on it?

Speaker 2 (00:49):
Well, I mean, ultimately it's their call, but but I
think you know it's a number that you know above
the expectations as you say, and the fact that we're
already announced that we'll go out with a two dollars
capital return to our I think those things will help.
I mean there's a lot of emotional connections to these brands,
not just used it in public, but our farmers as well.
So yeah, they'll ask those questions and we'll be out
talking to them. But at this point, the feedback I've

(01:11):
had for farmers has all been positive.

Speaker 1 (01:13):
It's been estimated that the average dairy farmer in the
White Cuttle we get about four hundred thousand dollars from it.
Is that about right?

Speaker 2 (01:20):
Yeah, that's about right. You know, it depends on farmers
that are significantly bigger than that, of course, and others
on the other side, but yeah, that's about an average farmer.

Speaker 1 (01:27):
I think, yeah, Trush, well I would say yes to that,
wouldn't you.

Speaker 2 (01:31):
Well, yeah, of course. But it's a capital return, so
it's not like it's fallen from the sky. This is
capital I've had invested in the cop for a number
of years, and so they are the questions that they ask.
But you know, it comes back to, you know, what
we've decided as a cooperative 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

(01:52):
support that.

Speaker 1 (01:52):
Part of the deal is a long term agreement for
Fonterra to sell milk and ingredients to these guys. How
long is that.

Speaker 2 (01:58):
For, Well, they vary depending on sort of what products
we're talking about, but you know we've talked about the
fresh milk agreement which goes into sort of the ankor
two leaders. As we'll 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 zeald public.

Speaker 1 (02:16):
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 2 (02:26):
Well, 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 formation in two thousand and one.
That has been the lowest performing channel for a long time.
And so you know, there be a variety of reasons.

(02:46):
That is an expensive business to maintain. You've got to
continue to invest in it, and so there are 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 knows, above the cost
of capital for our farmer owners, and that's for therefore
that's will put out our investment going forward.

Speaker 1 (03:05):
So now that you're getting rid of this particular part
of the business, where do you focus your energy more intently?

Speaker 2 (03:11):
Yeah, so it's that advanced ingredients, you know, and you've
got you know the developed economies of North America, Europe,
which are Japan career, which are spinning more on health
and wellness, and that's right in our wheelhouse. So that's
where we will 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 huge

(03:33):
market still to be tapped in that rule.

Speaker 1 (03:35):
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 2 (03:45):
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 that's the you know, we pride 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 drenth 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

(04:06):
of those proteins. That that's what we believe our futures
and as I say, that's where the value is for
us now and into the future.

Speaker 1 (04:13):
So is it too early to crack a bottle of champagne?

Speaker 2 (04:16):
Yeah, I've got a few more media calls to do
for the rest of the evening and Pharmer calls are
in fat lad into the night, So too early for that,
but we'll see what the weekend holds.

Speaker 1 (04:25):
Good for you, Miles, Enjoy it. Myles Hurrell, chief executive
at Fonterra. For more from Hither Duplessy Allen Drive, listen
live to news talks.

Speaker 2 (04:33):
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