Fonterra Farmers Set for Windfall as Consumer Brand Exit Nears
Source: DairyNews.today
Fonterra may return up to $3 billion to its farmer-shareholders from a potential full divestment of its consumer brands and businesses, according to Northington Partners’ analysis.
The anticipated capital return, estimated at around $2 per share, could be influenced by seasonal working capital needs and capital expenditures, Northington noted. This prospect has spurred gains in Fonterra’s stock; over the past year, Fonterra Co-operative Group (FCG) shares have doubled from $2 to $4.30, while Fonterra Shareholder Fund (FSF) units have similarly climbed from $3 to approximately $5.
The total book value of Fonterra’s consumer assets under review stands at $3.4 billion, representing a 12-times multiple of earnings before interest and tax (EBIT), Northington Partners reported. This compares to a typical valuation multiple of 14-times EBIT for comparable consumer dairy businesses.
“While Fonterra may divest some or all of its consumer businesses, it’s possible they’ll retain a shareholding. Any ongoing milk supply contracts or transaction terms could also impact the final valuation,” Northington said in its report to Fonterra’s Co-operative Council.
Fonterra is expected to provide an update on the divestment process at its annual meeting in Taranaki on Thursday, November 14. Northington highlighted the need for details on transaction structure, use of proceeds, and implications for the brands, manufacturing, workforce, and Fonterra’s ongoing relationships with any buyers.
“The rationale for exiting these consumer businesses appears sound from a financial performance perspective,” the report concluded. While these assets account for 30% of Fonterra’s capital base, they contribute only 14% of sales volumes.
The total book value of Fonterra’s consumer assets under review stands at $3.4 billion, representing a 12-times multiple of earnings before interest and tax (EBIT), Northington Partners reported. This compares to a typical valuation multiple of 14-times EBIT for comparable consumer dairy businesses.
“While Fonterra may divest some or all of its consumer businesses, it’s possible they’ll retain a shareholding. Any ongoing milk supply contracts or transaction terms could also impact the final valuation,” Northington said in its report to Fonterra’s Co-operative Council.
Fonterra is expected to provide an update on the divestment process at its annual meeting in Taranaki on Thursday, November 14. Northington highlighted the need for details on transaction structure, use of proceeds, and implications for the brands, manufacturing, workforce, and Fonterra’s ongoing relationships with any buyers.
“The rationale for exiting these consumer businesses appears sound from a financial performance perspective,” the report concluded. While these assets account for 30% of Fonterra’s capital base, they contribute only 14% of sales volumes.
