Fonterra Co-operative Group has confirmed the divestment of its global Consumer business and integrated units Fonterra Oceania and Fonterra Sri Lanka to prioritize its ingredients and foodservice businesses, following a “revised strategic direction.” 

The dairy exporter is assessing both a trade sale and IPO as divestment options and is preparing for a sale process that will vet both options, according to CEO Miles Hurrell.

Hurrell says the company is implementing these changes to create a more streamlined and “higher-performing” cooperative. Fonterra currently supplies dairy ingredients to global F&B customers such as Mars and Nestlé.

“Since our announcement in May 2024, we have been working with our team of advisors to assess potential divestment options, the assets and businesses in scope and the best pathway to maximize value for our co-op,” he says.

“This work, coupled with the confidence we have in our revised strategic direction, has confirmed a divestment of our global Consumer and associated businesses is in the best interests of the co-op.”

Trade sale and IPO plans

Hurrell reveals that in the scoping phase, Fonterra has received “meaningful buyer interest” in the units it wants to divest.

The co-op has seleced advisors to assist in managing this process.

“We will thoroughly test the terms and value of both a trade sale and IPO with the market before seeking support from farmer shareholders for a divestment option through a vote,” says Hurrell.

“A final decision on which divestment pathway to pursue will be based on several factors, including which option will result in optimal long-term value for the co-op.”

The company will provide updates over the coming months as the divestment procedures progress. After the process is complete, it aims to net a significant capital return to farmer shareholders and unitholders.

Prioritizing ingredients and foodservice

Fonterra announced “full or partial” divestment plans in May, aiming to become a more active B2B dairy nutrition provider.

“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation,” Hurrell said at the time.

Fonterra Oceania develops dairy products in Australia and New Zealand. At the same time, the Sri Lankan business includes the co-op’s dairy brand Anchor, which formulates products like whole cream milk powder, liquid milk, yogurt and flavored milk in the country.

The company leadership notes that while these businesses have contributed to strengthening performance, Fonterra does not need ownership of these units to require its “core function of collecting, processing and selling milk.”

Consolidating its presence in the foodservice sector, Fonterra recently announced an investment of NZ$150 million (US$92.9 million) to build a new UHT cream plant at its Edendale site in Southland, New Zealand.

The new plant will initially create upward of 50 million liters of UHT processing capacity, with the capacity to grow beyond 100 million liters by 2030.