Stuart Davison: Dairy Insights Consultant on Fonterra confirmation to sell consumer brands

Fonterra has confirmed it will sell off its consumer brands such as Anchor, Mainland and Kapiti. 

The company claims there has been significant interest but is considering whether to go for a straight sale or a listing of the brands. 

Dairy Insights Consultant Stuart Davison tells Heather du Plessis-Allan Fonterra wants to simplify the core business of New Zealand-processed milk. 

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Episode Transcript

Speaker 1 (00:00):
It turns out instead of a straight trade sale, Fonterira
is now considering an IPO to sell off its consumer brands.
We're talking the likes of Anchor, Mainland Company and so on.
Fonterrasy has had significant interest in buying these brands. Stewart
Davison Izidari Insights consultant Haste Stuart, I'm very well, thank you. Listen,
before we even get into like the machinations of this thing,

(00:20):
good idea to get rid of the consumer brands do
you think?

Speaker 2 (00:24):
Yeah? I think it is from the strategy that the
Fonterira team is presented to sharehold. Does it kind of
make sense? You know, they want to simplify the core
business of Fontira, which is process and newtail milk into
ingredients and food service goods, which they do really good,
really well, and you know, palm Off will hand off
the more complex, fast moving consumer goods business that is
the consumer arm of Fontira.

Speaker 1 (00:45):
Right because they don't have to know how to really
leverage these brands properly. But is it that complicated?

Speaker 2 (00:49):
Stewart, Well, I think, you know, we zoom out a
little bit and look at the size and scale of
Fonterira globally. You know, they've got the hands reasonably filled
with the ingredients and food service part. You know, it's
a put in perspective, it's New Zealand's biggest business, full stop,
and then you know, zoom a little bit further. It's
got all the markets across the world, it's got offices everywhere,
and that's just the ingredients. Could you keep that portional

(01:11):
scale going. So there's a lot going on, and I
think they've admitted to you know, they've got too many
balls in the air to really give the consumer side
a good going going out, and so you know, palming
off to someone else to really put some effort into
it and focus on makes a lot of sense.

Speaker 1 (01:28):
Why would they consider instead of a straight trade sale,
which I think we all assume they would do, why
would they consider an I p O.

Speaker 2 (01:35):
Well that's a really good question. Actually, it's kind of
a bit of an exciting option for the market too.
So you know, taking it from farmer owned cooperative consumer
business to then offering up to the I p O
market and putting it back on the listed market, it's
pretty exciting, you know for those farmers that you know
complained when this option came up or the management thought
about it and now they can actually have a they

(01:57):
can have a stab at owning this business as well.
You know, those farmers can when they get their capital return,
contain around and go and buy some of this IPO
if it gets listed. And then for everyne house in
New Zealand for example, they can have a share of
this business if it meants their requirements. And then also
you know, for institutional investors as well, to get a
bit of an exposure to the world of theory consumer goods.
It's it's quite an exciting opportunity if it's presented well,

(02:19):
it could be quite a good opportunity.

Speaker 1 (02:21):
But Stuart, am I reading this wrong. In my head,
an IPO means Fonterra retains some ownership of it.

Speaker 2 (02:28):
Yeah, can do. Yeah, there's definitely a portion that Fonterra
could keep fifty one percent or forty percent, you know,
you roll the dice and pick a number. But the
end of the day, they can also you know, IPO
hold for the whole period and then slowly eat their
way out of it too. So at that point there's
you know, once we get over that whole period which
is all all determined by the exchange and the company

(02:48):
and ownership and the investment bank that underwrites it. You know,
that can all be figured out in future in due course,
but Fonterra might want to keep control of it. Two,
considering you know what they've told us that there's going
to be supplied agreements in the background with whatever they
do in the consumer business space to make sure that
the milk and produced by New Zealand Farmers continues to
find those brands.

Speaker 1 (03:09):
I see they've also decided to retain they were going
to sell, but they're not going to anymore. A very
small China consumer business and then also a Saudi manufacturing factory. Why.

Speaker 2 (03:18):
Yeah, Well these are questions I don't have the exact
answer for, but I mean those are very important markets
for them for both. So I mentioned they're probably small
enough or have some value to the ingredients space or
the food service space, you know, to complement the existing
businesses there, or that the businesses they look to retain
going forward.

Speaker 1 (03:34):
Stuart, thanks for the insights. Appreciated that. Stuart Davisondiry Insights Consultant.
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