Fonterra confirms takeover bid for Australia’s Murray Goulburn

Dairy cooperative Fonterra has confirmed it has lodged a bid for Australia’s largest dairy processor, Murray Goulburn.

A number of groups are believed to have made offers for the struggling company, but Fonterra is the first to confirm its interest on the same day it released its full-year results.

Speaking to the Australian Broadcasting Corporation (ABC), managing director of Fonterra Australia René Dedoncker confirmed the bid and said he could see the two cooperatives working well together.

“The answer is yes we have put forward a proposal,” he said. “It’s non-binding and indicative and at this point we are going to sit tight and give the MG board the respect they deserve to consider all proposals.

“In many respects we’re not that different. When they are ready to talk we will be there and at some point when the boards are aligned there may be news.”

Murray Goulburn has sought bids as part of a strategic review after a poor couple of years. Last month it announced a sales decline of 10% in its fiscal 2016/17 year-end results. 

The company recorded revenue of AUD 2.49 billion ($1.9 billion) – down 10%, which it said is due to a decline in fluid milk sales. It made a net loss of AUD 370.8 million ($283.5 million), compared to a profit of $39.8 million in 2016.

To counteract the decline in revenue, it introduced cost-cutting measures including the removal of the milk supplier support package, which saw a number of dairy farmers cut ties with the cooperative. 

Fonterra Australia is overtaking Murray Goulburn as Australia’s largest milk processor, collecting a reported 2 billion litres of milk last year.

However, if the deal were to go ahead, the two companies would collect between 40% and 50% of the milk produced in Australia, posing competition issues.

Speaking to ABC, Dedoncker said that Fonterra Australia is looking to grow in order to meet higher demand.

“We have hit all our performance targets, we have a clear strategy which is delivering and have the right assets and product mix on the ground,” he said.

“We are now looking to build on that base with further expansion linked to growing customer demand for consumer dairy, food service products and dairy ingredients.

“With our plants full we will be accelerating our capital investments in regional Victoria and Tasmania playing to our strengths in cheese, whey and nutritionals.”

In its full-year results, Fonterra saw its net profit slump by 11% in the year to 31 July. However, revenue rose to NZD 19.2 billion ($15.52 billion), up 12% from NZD 17.2 billion the year before. Rising prices were said to offset a 3% decline in volumes.