Matt Montgomerie: Forsyth Barr Senior Analyst says Fonterra's sale could see global interest

Fonterra is expected to receive global interest when it sells off some of its most well-known brands. 

The dairy giant has confirmed plans to sell its consumer arm, including brands like Anchor, Mainland Cheese, and Kapiti Ice Cream. 

The sale could bring in up to $3 billion. 

Forsyth Barr Senior Analyst Matt Montgomerie told Ryan Bridge he expects large dairy companies like Nestle would make a bid if it's put to a trade sale. 

He says there could be multiple buyers at play, or the brands could be sold through an IPO. 

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Episode Transcript

Speaker 1 (00:00):
Fonterra is confirmed it's going to sell some consumer businesses,
including brands like Anchor, Mainland and Carpety. The sale could
potentially bring in billions for the Dairy co operative up
to three billion. To decide how to sell the businesses,
either through a direct sale or an IPO, all cards
are kind of on the table. Matt Montgomery is with
Forsyth Bar He's a senior analyst equities there. Matt, good morning,

(00:23):
come on, thanks for having me, Thanks so much for
being with me. First of all, who do you think
would buy this?

Speaker 2 (00:30):
Yeah, there's still a water, A lot of water's going
to the bridge. Clearly they said yesterday they've received meaningful
buyer interest in the businesses and as you mentioned, that's
either through there were trade sale and if that was
the case, I would expect it to be the more
akin to the large dairy companies like Nesle, the known

(00:51):
Black Palaces or they have also mentioned an IPO. And
the other thing I'd add is there could be multiple
buyers that play to every chance. It's not cut into
one one large sale. There could be multiple buys.

Speaker 1 (01:06):
So you could have Meslade taking capity and then another
big boy Wow.

Speaker 2 (01:11):
Yeah, maybe not quite that level of granularity, but they
are talking about Australia, then the consumer brands and some
businesses in Sri Lanka, so there are different ways that
it could be cut.

Speaker 1 (01:23):
What are the benefits of an IPO.

Speaker 2 (01:26):
Yeah, I think the important thing there from a sheer
macket point of view, would be able to continue to
have judgment and access of those key businesses for New
Zealanders and shareholders alike. It's clearly been a relatively denign
period in the listed market for IPO, so that would

(01:47):
be helpful. Whereas if there was a trade self and
you could envisage that possible buyers, there could be reasonable
synergies for those businesses through sales and distribution where they
already have quite established networks globally.

Speaker 1 (02:05):
Why did we why did Fonterra I should say, invest
in and start and purchase some of these businesses in
the first place? What was the theory?

Speaker 2 (02:17):
The idea was to shift the strategy towards value our
products and to realize more value per drop of milk
for farmers. Essentially, I think ultimately, if we look back
through time, the consumer businesses haven't delivered the level of
returns and earnings that VI would that farmers and shareholders
would intimately expect. And that's a combination of challenges to

(02:41):
operate three different milk pools. If you think about Fontira's
business with food service, ingredients and consumer and also just
lack of scale when you're looking to launch a number
of brands and a number of different jurisdictions around the world,
that creates challenges which back to the level the cost
space that you need to invest in the business for

(03:03):
the revenue that you can generate. So we think focusing
on the core goes business, be it food service and ingredients,
as were Fontierra's future this life.

Speaker 1 (03:15):
Was value added a fad because we were told, weren't
we that we needed to add value to the still
told actually we need to add value to our you know,
our commodities and order that we get ahead as a country,
et cetera. Has this shown that perhaps the experiment hasn't worked.

Speaker 2 (03:33):
I wouldn't had the found I mean, the other companies
have been successful, but like I say, there is Fonterra
haven't been as successful as they would like through a
number of years now. It hasn't just been one or
two challenging periods. It's been a prolonged period of time,
but it has worked for other businesses, and that's why

(03:55):
we see other buyers as ultimately better owners of these brands.

Speaker 1 (04:02):
Potentially three billion dollars. What happens to the money they
sell them?

Speaker 2 (04:07):
Yeah, Fontira has stated that they're targeting a significant capital
return if you look at Fontira's balance sheet, and a
very good, very good chance, as good as it ever
has been. So you know, we would expect the large,
large majority of the capital returns to ultimately be returned
to farmers through probably a special dividend of some kinds.

Speaker 1 (04:32):
Thanks so much for your time. Matt Montgomery, who's the
Forsyth Bar senior analyst Equities with us talking about the
sale of Fonterra's well potential sale and it would be
sometime in the future, potentially a year before this goes
ahead of its consumer businesses, brands like Anchor, Mainland Carpany
are worth up to three billion bucks. For more from
Early Edition with Ryan Bridge. Listen live to news talks.

(04:54):
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