The cash from the sale, to CVC Strategic Opportunities II, a fund managed by CVC Capital Partners, along with proceeds from other asset sales across the year – which includes the significant contribution from Tip Top – gives Fonterra more than NZ$1bn (US$632m) for debt reduction.
Fonterra CEO, Miles Hurrell, said, “We set ourselves a tough initial target for debt reduction and we are pleased with the progress we are making. It’s an important milestone in our coop’s plan to lift our business performance.
“A year ago, we started a full portfolio review to re-evaluate every investment, major asset and partnership, to make sure they were still right for the coop.
“In March, we advised that we were reviewing our share of DFE Pharma, a 50% joint venture with Royal Friesland Campina. DFE Pharma was identified for sale due to the substantial capital required for its future growth.”
The sale to CVC Strategic Opportunities II is made up of a cash payment of NZ$537m (US$340m), payable on completion of the sale, plus an interest-accruing vendor loan of NZ$96m (US$60.7m), for a term of up to 15 years. Built into the deal is a potential additional payment of up to NZ$44m (US$27.8m) based on DFE’s performance over two years.
Hurrell said Fonterra will stay committed to the ongoing success of the DFE Pharma business through a long-term supply agreement and the interest-accruing vendor loan.
“A big part of the success of DFE Pharma has been the high-quality lactose produced by the team at Fonterra’s Kapuni site in Taranaki and it is a good outcome to be able to continue to supply this,” Hurrell said.
“This milestone, along with the significant inroads made in our capital and operational expenditure during FY19, makes for a good initial chapter in our business turn-around. It puts us on the right footing to deliver our new strategy and a sustainable lift in our performance.”
The sale is subject to receipt of regulatory approvals from competition authorities.