Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Fonterra bid for National Foods

28 October 2004

Fonterra bid for National Foods shows company in ‘serious growth mode’

By Keith Woodford Professor of Agribusiness Lincoln University

The bid by Fonterra to purchase National Foods in Australia is the biggest strategic move in the New Zealand dairy industry since the formation of Fonterra itself.

The move signifies that Fonterra is very serious about developing the consumer products side of its business.

The bid price of $A1.62billion represents full pricing. This price has been judged necessary by Fonterra’s advisers to attract a sufficient number of the existing shareholders to sell.

Fonterra has a sufficiently strong balance sheet that it will be able to finance the purchase from borrowings. However, given a price to earnings ratio of 19:1, it is unlikely that in the short term the investment will return the cost of capital to Fonterra. Accordingly, Fonterra must be making the move because of the strategic opportunities it believes it offers as a platform into Asia. In the short term it is likely to cost farmers money.

National Foods has a strong stable of brands including Fruche, Yoplait, Yogo, Big M, Pura, Farmers Union, and Feel Good. However, some of these will be franchised brands and so Fonterra will not necessarily be getting international rights to all of them.

In recent years a number of prominent commentators have been urging Fonterra to move more decisively into the consumer products market. But making such a move is easier said than done. The opportunity to purchase National Foods is one of those opportunities that only comes up very occasionally.

Currently there is another proposal on the Board table at National Foods. This is to amalgamate with SPC Ardmona, which is a non-dairy company. Fonterra is not interested in SPC Ardmona. Therefore for Fonterra it was a case of acting now or never.

If the purchase goes ahead it will undoubtedly cause New Zealand dairy farmers to focus more strongly on the question of what is the best long term capital structure for Fonterra. The proposed investment means that Fonterra is planning to go into serious growth mode. This means that farmers will be making ever larger investments beyond the farm gate, and that will create its own pressures and tensions.

ENDS


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 


MPI: Dry Autumn In Waikato And South Auckland Leads To Drought Classification Drought conditions affecting the primary sector in the Waikato and South Auckland were today classified as a medium-scale adverse event, enabling a package of support for farmers and growers... More>>



Commerce Commission: Invites Feedback On Its Initial Views Of Wellington Airport’s Pricing Decisions

The Commerce Commission is inviting feedback on its initial views, released today, about Wellington Airport’s pricing decisions for specified airport services, such as aircraft parking or airfield and passenger terminal charges, for the period 1 April 2019 to 31 March 2024... More>>



Government: Lower Card Fees On Way For Business, Consumers

A Bill to help lower the fees charged when credit and debit transactions are made, will save New Zealand businesses around $74 million a year... More>>



Barfoot & Thompson: Rents Up By Around 3% In Most Areas

The average weekly rent paid for homes in most areas of Auckland has risen by around 3 percent year-on-year. The figures for end March from more than 16,000 properties... More>>


DoC: Smeagol The ‘Gravel Maggot’ Leaves Its Rare Mark On The Remote West Coast
An extremely rare species of sea slug or ‘gravel maggot’ has been detected for the first time on a remote beach in South Westland... More>>



Immigration: Annual Net Migration Loss Of 7,300

The provisional net loss of 7,300 people in the year ended March 2022 was the lowest net migration for a March year since 2012, Stats NZ said today... More>>