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New Zealand dairy giant Fonterra has announced a divestment of its global consumer and associated businesses to Lactalis for $2.3 billion, a move that underscores its aim to sharpen the focus on its core strengths in the dairy ingredients and foodservice sectors.

The transaction, which remains subject to farmer shareholder approval and regulatory clearances, is expected to reshape Fonterra's operational landscape and enhance its financial positioning.

The sale encompasses Fonterra's global consumer business, excluding operations in Greater China, along with its integrated foodservice and ingredients businesses in Oceania, Sri Lanka and the Middle East and Africa.

Notably, the deal includes a long-term agreement for Fonterra to continue supplying milk and dairy ingredients to Lactalis, ensuring that known brands such as Anchor and Mainland will maintain their New Zealand milk sourcing.

In addition to the base enterprise value, there is potential for an increase of up to $232 million contingent on the inclusion of Bega licenses held by Fonterra's Australian operations, which could raise the total transaction value to $2.5 billion.

Fonterra chairman Peter McBride highlighted that the decision to pursue a sale was reached after extensive evaluations of both trade sale and initial public offering (IPO) options.

"Following a highly competitive sale process, the board is confident that a sale to Lactalis represents the highest value option for the Co-op," he commented, highlighting the benefits of a quicker capital return to shareholders compared to an IPO.

Fonterra's CEO, Miles Hurrell, echoed this sentiment, noting that the partnership with Lactalis, the world's largest dairy company, positions Fonterra's brands for further growth and innovation.

"This divestment allows Fonterra to focus on our world-leading Ingredients and Foodservice businesses, which are key to our long-term strategy," Hurrell added.

For Fonterra's farmer shareholders, the sale is projected to yield a tax-free capital return of $1.24 per share, amounting to approximately $1.9 billion.

A special meeting for shareholders is scheduled for late October or early November to vote on the divestment, with a Notice of Meeting to be issued in early October.

The transaction is also expected to have implications for the broader dairy market, particularly in Oceania and Southeast Asia, where Lactalis aims to strengthen its position.

Lactalis CEO Emmanuel Besnier remarked: "Combining Fonterra's consumer business with our existing operations will enhance our market presence in key regions".

The completion of the sale hinges on various regulatory approvals, including assessments from New Zealand's Overseas Investment Office and Australia's Foreign Investment Review Board, as well as competition regulators in multiple jurisdictions.

The Australian Competition & Consumer Commission has indicated it will not oppose the acquisition.

As Fonterra prepares for this significant transition, it remains focused on its core operations, with FY25 earnings guidance unchanged at $0.40 to $0.45 per share. The company anticipates announcing its FY26 earnings guidance alongside its FY25 Annual Results in September 2025.