Fonterra has announced that it is selling three of the Fonterra Chinese dairy farms to Chinese companies for a total of over $555 million dollars (€314m). While an unexpected, but probably not surprising move Fonterra chief executive said in an email to New Zealand suppliers that the move was in line with Fonterra strategy to prioritise New Zealand milk and focus on Fonterra’s competitive advantages. It's unlikely New Zealand farmers will be upset with this move as the farms have cost the company money since they first started investing.
The three farms are to be sold to Chinese companies – two farms going to the China Youran Dairy Group for $513m. Separately, the Hangu farm sale is agreed for $42m to Sanyuan Group.
In his note to suppliers CEO Mile Hurrell said: “We have successfully developed the farms alongside local partners and in doing so we’ve demonstrated our commitment to the Chinese dairy industry. We’ve reached the stage where it is now time to pass the baton to Youran and Sanyuan to continue the development of the farms. China remains one of our most important strategic markets, receiving around a quarter of our production.”
We understand the 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.
Fonterra suppliers were not alerted whether Fonterra will have to take a financial write down on the sale. The note from the CEO said: “Our forecast 2020/21 earnings guidance range, as announced with our annual results last month, does not take into account this sale and remains at 20-35 cents per share. We expect to use the cash proceeds from the sale to continue to pay down debt, as part of our overall debt reduction programme.”
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