Monday 13th May 2019
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Global ice cream company Froneri has bought Fonterra Cooperative Group's Tip Top for $380 million, ending a six-month sale process.
The price was about $100 million above book value, which will lift earnings by six cents per share, Fonterra said.
The agreed settlement date is May 31. While there will be a transition period over a number of months, it will be "very much business as usual" and Tip Top employees will transfer across to become part of Froneri, Fonterra said.
Froneri, a Nestle-R&R joint venture, also confirmed that the Tip Top business will continue to be led by the existing management team. The Tip Top name and its operations, including the factory in the Auckland suburb of Mount Wellington, will be maintained.
Fonterra announced the sale of assets no longer deemed core after reporting its first ever full-year loss last September. When it announced the business was for sale, Fonterra said it wanted Tip Top to stay based in New Zealand.
New Zealand First primary industries spokesperson Mark Patterson said the news was disappointing. “If we are to build a value-added future for our economy, keeping the ownership of brands like Tip Top in Kiwi hands is critical,” he said.
Chief executive Miles Hurrell said no New Zealand buyer came forward with the right terms and conditions. He acknowledged Tip Top is an "iconic brand in NZ and it is hard" when a brand is sold to an offshore buyer.
While the company will now be foreign owned, Hurrell said its attractiveness - with an average 340 serves of Tip Top every minute - "came through in both the number and quality of bids we received." He said Fonterra had secured a good price for its farmers and unitholders and the fact that Froneri's offer ensured the business remained in New Zealand was "paramount."
Hurrell said the sale was a tough decision but "we are a dairy nutrition company and this is a confectionery company."
He said its "been a privilege being the guardians of Tip Top, but it’s time to hand the baton to new owners. The well-loved brand needs continuing investment and focused ownership to be sustainable for generations to come. It’s not something we’re in a position to do right now," he said.
UK-based Froneri has more than 10,000 employees and operates in 20 countries.
Hurrell said he was pleased with the price. "We've announced that we are going to get our debt position down by $800 million this financial year and this goes a long way to doing that," he said.
Regarding other divestments, Hurrell said that, while Fonterra has "other one-off transactions that are underway but not yet completed, such as the potential sale of DFE Pharma, it is too early to assess the overall impact of the co-op’s divestment programme on its FY19 earnings."
He said "we've talked about our business in Europe and we are talking to a number of interested parties now. That's progressing very well."
In a separate statement, Froneri chief executive Ibrahim Najafi said Tip Top is an "iconic brand" in New Zealand.
"Our vision is to build the world’s best ice cream company; an important part of our strategy is to develop local market successes and roll them out across our other markets.”
Fonterra has signed an agreement with the new owners to supply milk to Froneri.
Hurrell couldn't disclose the terms of the milk supply deal but said "it's a long agreement." Fonterra will retain full global ownership of the Kapiti brand and will be licencing its use for ice cream to Froneri. Hurrell said that the Kapiti brand pre-dates Fonterra's foray into ice cream. "We see value in that brand through the cheese and liquid milk market and so that will continue."
Units in the Fonterra Shareholders Fund are up 0.5 percent at $4.30.
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