Fonterra sells its dairy farms in China in $555 million deal

Fonterra has agreed to sell its China farms for a total of $555 million (€313.74 million), the New Zealand dairy giant has confirmed.

Inner Mongolia Natural Dairy Co. Ltd, a subsidiary of China Youran Dairy Group Limited, has agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for $513 million (€290 million).

Separately, Fonterra has agreed to sell its 85% interest in its Hangu farm to Beijing Sanyuan Venture Capital Co. Ltd for $42 million (€23.74 million). Sanyuan has a 15% minority shareholding in the farm and exercised its right of first refusal to purchase Fonterra’s interest.

CEO Miles Hurrell says that, in building the farms, Fonterra has “demonstrated its commitment” to the development of the Chinese dairy industry.

He added that the sale of the farms will allow the co-op to “prioritise the areas of its business where it has competitive advantages”.

“For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the co-op today.

“Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk,” Hurrell said.

“China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production.

Selling the farms will allow us to focus even more on strengthening our foodservice, consumer brands and ingredients businesses in China.

Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year.

The co-op said that, through the sale process and strategic review of its China Farms it “gained additional information and further insights and, as a result, revised down the valuation of these assets”.

The transaction value is subject to customary purchase price adjustments, and exchange rate movements. Any gains or losses on the sale would be normalised upon completion of the sale, it was added.

Fonterra expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction programme.