Fonterra has agreed to offload its 50% stake in DFE Pharma, a joint venture with Friesland Campina, for NZD 633 million ($401 million).
The cash from the sale, along with proceeds from other asset sales across the year – which includes the contribution from ice cream business Tip Top – will give Fonterra more than NZD 1 billion ($633.5 million) available for debt reduction.
Fonterra advised in March that it was reviewing its share in DFE Pharma, a supplier of pharmaceutical excipients, as part of plans to reduce debt. The divestiture comes after the New Zealand cooperative recorded its first annual loss last year.
The 50% stake in DFE Pharma will be bought by CVC Strategic Opportunities II, a fund managed by CVC Capital Partners – the private equity firm that secured a deal to buy Bosch’s packaging machinery division in July.
The sale is made up of a cash payment of NZD 537 million ($340.2 million), payable on completion of the sale, plus an interest-accruing vendor loan of NZD 96 million ($60.8 million), for a term of up to 15 years. Built into the deal is a potential additional payment of up to NZD 44 million ($27.9 million) based on DFE’s performance over two years.
“We set ourselves a tough initial target for debt reduction and we are pleased with the progress we are making,” said Fonterra CEO Miles Hurrell. “It’s an important milestone in our co-op’s plan to lift our business performance.
“A year ago, we started a full portfolio review to reevaluate every investment, major asset and partnership, to make sure they were still right for the co-op.
Hurrell added that Fonterra was pleased to have secured a good sale price and will stay committed to the success of DFE Pharma 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,” he 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 turnaround. It puts us on the right footing to deliver our new strategy and a sustainable lift in our performance.”
© FoodBev Media Ltd 2019