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Fonterra Chief Executive Theo Spierings says Fonterra will partner with leading Chinese infant food manufacturer Beingmate Baby and Child Food – a company part of the greater Beingmate Group.
Once the deal has gained regulatory approval, Fonterra and Beingmate will form a joint venture to purchase Fonterra’s Darnum plant in Australia and establish a distribution agreement to sell Fonterra’s Anmum branded products in China. It’s the first major partnership in China for Fonterra to undertake since the disastrous San Lu venture which failed amid the tainted milk scandal in 2008.
“China is our number one market and the proposal to join forces with Beingmate will be an important building block in Fonterra driving volume and value, and taking a step forward in terms of being a globally relevant co-operative,” said Spierings.
Beingmate provide an extensive distribution and sales network for Fonterra to tap into, giving the co-operative direct access to the Chinese infant formula market. The deal will see Anmum exclusively licensed to Beingmate in China, with Fonterra earning a royalty fee from sales – a move that Spierings says will lower the execution risk for Fonterra compared with a stand-alone strategy.
The deal will give Fonterra a 49 per cent stake in the newly formed joint venture, with Beingmate holding the remaining 51 per cent. Fonterra ceding the majority stake of the new venture to Beingmate is a move to satisfy Chinese regulators. Spierings said that Fonterra will however retain day-to-day control of the Darnum plant.
Beingmate group have committed to Fonterra’s partial tender offer, wherein Fonterra will acquire up to 20 per cent of Beingmate at a bid price of 18 RMB per share. The offer represents a significant 20 per cent premium over the 14.36 RMB price that the shares last traded at. The acquisition will be entirely funded through debt, a move facilitated by Fonterra’s strong balance sheet.
CFO Lukas Paravicini said that the transaction is worth around $615 million NZD, including proceeds from the sale of the Darnum operation.