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Matt Montgomerie: Forsyth Barr Senior Analyst says Fonterra's sale could see global interest · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Fonterra is confirmed it's going to sell some consumer businesses,
• 0:02
  Speaker 1: including brands like Anchor, Mainland and Carpety. The sale could
• 0:06
  Speaker 1: potentially bring in billions for the Dairy co operative up
• 0:09
  Speaker 1: to three billion. To decide how to sell the businesses,
• 0:13
  Speaker 1: either through a direct sale or an IPO, all cards
• 0:16
  Speaker 1: are kind of on the table. Matt Montgomery is with
• 0:19
  Speaker 1: Forsyth Bar He's a senior analyst equities there. Matt, good morning,
• 0:23
  Speaker 1: come on, thanks for having me, Thanks so much for
• 0:25
  Speaker 1: being with me. First of all, who do you think
• 0:28
  Speaker 1: would buy this?
• 0:30
  Speaker 2: Yeah, there's still a water, A lot of water's going
• 0:32
  Speaker 2: to the bridge. Clearly they said yesterday they've received meaningful
• 0:37
  Speaker 2: buyer interest in the businesses and as you mentioned, that's
• 0:40
  Speaker 2: either through there were trade sale and if that was
• 0:43
  Speaker 2: the case, I would expect it to be the more
• 0:46
  Speaker 2: akin to the large dairy companies like Nesle, the known
• 0:51
  Speaker 2: Black Palaces or they have also mentioned an IPO. And
• 0:54
  Speaker 2: the other thing I'd add is there could be multiple
• 0:58
  Speaker 2: buyers that play to every chance. It's not cut into
• 1:03
  Speaker 2: one one large sale. There could be multiple buys.
• 1:06
  Speaker 1: So you could have Meslade taking capity and then another
• 1:09
  Speaker 1: big boy Wow.
• 1:11
  Speaker 2: Yeah, maybe not quite that level of granularity, but they
• 1:14
  Speaker 2: are talking about Australia, then the consumer brands and some
• 1:17
  Speaker 2: businesses in Sri Lanka, so there are different ways that
• 1:21
  Speaker 2: it could be cut.
• 1:23
  Speaker 1: What are the benefits of an IPO.
• 1:26
  Speaker 2: Yeah, I think the important thing there from a sheer
• 1:31
  Speaker 2: macket point of view, would be able to continue to
• 1:34
  Speaker 2: have judgment and access of those key businesses for New
• 1:39
  Speaker 2: Zealanders and shareholders alike. It's clearly been a relatively denign
• 1:44
  Speaker 2: period in the listed market for IPO, so that would
• 1:47
  Speaker 2: be helpful. Whereas if there was a trade self and
• 1:52
  Speaker 2: you could envisage that possible buyers, there could be reasonable
• 1:56
  Speaker 2: synergies for those businesses through sales and distribution where they
• 2:01
  Speaker 2: already have quite established networks globally.
• 2:05
  Speaker 1: Why did we why did Fonterra I should say, invest
• 2:09
  Speaker 1: in and start and purchase some of these businesses in
• 2:13
  Speaker 1: the first place? What was the theory?
• 2:17
  Speaker 2: The idea was to shift the strategy towards value our
• 2:20
  Speaker 2: products and to realize more value per drop of milk
• 2:24
  Speaker 2: for farmers. Essentially, I think ultimately, if we look back
• 2:29
  Speaker 2: through time, the consumer businesses haven't delivered the level of
• 2:33
  Speaker 2: returns and earnings that VI would that farmers and shareholders
• 2:37
  Speaker 2: would intimately expect. And that's a combination of challenges to
• 2:41
  Speaker 2: operate three different milk pools. If you think about Fontira's
• 2:44
  Speaker 2: business with food service, ingredients and consumer and also just
• 2:50
  Speaker 2: lack of scale when you're looking to launch a number
• 2:54
  Speaker 2: of brands and a number of different jurisdictions around the world,
• 2:58
  Speaker 2: that creates challenges which back to the level the cost
• 3:01
  Speaker 2: space that you need to invest in the business for
• 3:03
  Speaker 2: the revenue that you can generate. So we think focusing
• 3:07
  Speaker 2: on the core goes business, be it food service and ingredients,
• 3:11
  Speaker 2: as were Fontierra's future this life.
• 3:15
  Speaker 1: Was value added a fad because we were told, weren't
• 3:18
  Speaker 1: we that we needed to add value to the still
• 3:20
  Speaker 1: told actually we need to add value to our you know,
• 3:24
  Speaker 1: our commodities and order that we get ahead as a country,
• 3:27
  Speaker 1: et cetera. Has this shown that perhaps the experiment hasn't worked.
• 3:33
  Speaker 2: I wouldn't had the found I mean, the other companies
• 3:35
  Speaker 2: have been successful, but like I say, there is Fonterra
• 3:41
  Speaker 2: haven't been as successful as they would like through a
• 3:45
  Speaker 2: number of years now. It hasn't just been one or
• 3:47
  Speaker 2: two challenging periods. It's been a prolonged period of time,
• 3:52
  Speaker 2: but it has worked for other businesses, and that's why
• 3:55
  Speaker 2: we see other buyers as ultimately better owners of these brands.
• 4:02
  Speaker 1: Potentially three billion dollars. What happens to the money they
• 4:05
  Speaker 1: sell them?
• 4:07
  Speaker 2: Yeah, Fontira has stated that they're targeting a significant capital
• 4:11
  Speaker 2: return if you look at Fontira's balance sheet, and a
• 4:15
  Speaker 2: very good, very good chance, as good as it ever
• 4:18
  Speaker 2: has been. So you know, we would expect the large,
• 4:22
  Speaker 2: large majority of the capital returns to ultimately be returned
• 4:26
  Speaker 2: to farmers through probably a special dividend of some kinds.
• 4:32
  Speaker 1: Thanks so much for your time. Matt Montgomery, who's the
• 4:34
  Speaker 1: Forsyth Bar senior analyst Equities with us talking about the
• 4:37
  Speaker 1: sale of Fonterra's well potential sale and it would be
• 4:40
  Speaker 1: sometime in the future, potentially a year before this goes
• 4:43
  Speaker 1: ahead of its consumer businesses, brands like Anchor, Mainland Carpany
• 4:48
  Speaker 1: are worth up to three billion bucks. For more from
• 4:51
  Speaker 1: Early Edition with Ryan Bridge. Listen live to news talks.
• 4:54
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• 4:58
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