Fonterra, Nestlé complete DPA Brazil sale to Lactalis

The completion of the deal, worth approximately $140.5m at current exchange rates, means the joint venture formerly held by the New Zealand dairy co-operative and the Swiss food group is now under the control of Lactalis Brasil.

But to get a regulatory nod, the JV’s new owner had to alleviate several competition concerns.

While Lactalis, Fonterra and Nestlé reached a deal for the sale of DPA Brazil back in December 2022, in August 2023 the investigative arm of Brazil’s competition authority CADE recommended blocking the deal over ‘likely competition concerns related to horizontal effects in the market of cold dairy’. More specifically, CADE suggested that the merger would result in a horizontal overlap in the milk collection in the states of Pernambuco, São Paulo, Paraná and Minas Gerais, while vertical integrations would also enable DPA to access milk, powdered milk and powdered whey supplied by Lactalis to manufacture its own products. Competition in segments like fermented milk, petit suisse and dairy desserts would be particularly affected by the merger, while yogurt, cream cheese and milk production were not found to be under such threat.

Lactalis argued against these competition fears due to ‘strong rivalry in the markets involved’, including from national players Danone and Vigor, Yakult in the fermented dairy sector, and regional players such as Tirol, Frimesa and Frutap. But CADE, which is also responsible for approving mergers and acquisitions, found only a small number of competitors in the market and concluded that those had ‘little ability to challenge the market power resulting from the transaction’.

To get the deal over the line, Lactalis agreed in October 2023 to enter a licensing agreement – so called agreement on concentration control, or ACC – with CADE over the marketing of the three segments the body was most concerned about - fermented milk, petit suisse and dairy desserts. The agreement is for a period of seven years, extendable for another three under the regulator’s discretion, and involves the licensing of the Batavo and Batavinho brands to Tirol.

Commenting on the competition of the sale, Fonterra CEO Miles Hurrell said: “With our decision to focus on our New Zealand milk pool, the sale of DPA Brazil means we can prioritise our resources to the businesses that are core to our strategy.”

In other news, Fonterra’s chief financial officer Neil Beaumont is leaving the business, the co-op announced. Beaumont joined Fonterra in February 2023 and will leave the business on November 3. Fonterra declined to provide additional information about the nature of the CFO’s departure when approached by DairyReporter.

The announcement has surprised industry insiders given its sudden and unexplained nature. Fonterra recently reported favorable financial results, recording 170% increase in net profits.  

Beaumont will be provisionally replaced by Simon Till, the co-op’s director capital markets, while a permanent CFO is recruited.