A licence dispute between Fonterra and Bega Cheese has been settled, and it was confirmed last week, allowing a multi-billion-dollar deal to proceed.
The $4.22 billion divestment of Fonterra’s consumer and foodservice operations to Lactalis is now on track.
Licence Dispute with Bega Resolved
Fonterra confirmed on Monday that its dispute with Bega Cheese over licence terms had been resolved. The issue centred on whether the sale of Fonterra’s consumer businesses to Lactalis triggered a change of control under existing agreements.
“Bega agrees that the structure of the sale to Lactalis of Fonterra’s global consumer and associated businesses does not constitute a change of control under the Bega licences,” the co-op said. The settlement means the Bega licences will be included in the sale, with Fonterra also agreeing to cover Bega’s legal costs.
Transaction Value Increases with Licence Inclusion
The inclusion of the Bega licences increases the value of the transaction significantly. The original sale price announced last week was $3.845 billion. Lactalis will pay a further $375 million, bringing the total to $4.22 billion, with the additional licences.
“As previously announced, Lactalis will pay Fonterra $375 million for the Bega licences in addition to the $3.845b base enterprise value,” Fonterra said.
Scope of Assets in Fonterra Divestment
The sale to Lactalis covers a wide swathe of Fonterra’s global consumer-facing operations. According to the company, the deal includes:
- Fonterra’s global consumer business (excluding Greater China)
- Its consumer brands portfolio
- Integrated foodservice and ingredients businesses in Oceania and Sri Lanka
- The Middle East and Africa foodservice business
The carve-out represents a significant shift for Fonterra, which is moving away from consumer-focused operations to refocus on its core dairy ingredients and co-operative priorities.
Competitive Sale Process and CEO Commentary
Chief executive Miles Hurrell highlighted the level of interest in the sale, describing it as one of the most hotly contested transactions the co-operative has run.
“We can’t get into who the parties were, but I think that the value that has come through suggests that it was a very competitive and contestable process,” Hurrell said at a news conference.
He added that an initial public offering for the consumer businesses had remained an option right up until the deal with Lactalis was finalised. “An initial public offer (IPO) option was on the table right up until the deal with Lactalis was signed,” Hurrell confirmed.
Market Significance of the Lactalis Deal
Analysts had predicted that a trade sale would be the most likely outcome for the divestment, but the final purchase price exceeded expectations. Hurrell noted the agreed sale “was well over market expectations and will count as one of New Zealand’s biggest corporate transactions.”
Fonterra’s $4.22 billion divestment to Lactalis is back on track after settling a dispute with Bega Cheese. The agreement, confirmed last week, secures the deal and locks in the sale price. It represents one of the largest corporate transactions in New Zealand history. The co-operative is now repositioning itself toward ingredients, foodservice, and farmer returns.