FrieslandCampina linked to Fonterra, is that realistic?

FrieslandCampina would have already submitted an unsolicited offer at the end of 2023, together with Pacific Equity Partners, to take over part or all of Fonterra's Australian activities, according to the Australian newspaper, which usually acts conservatively with these types of reports. When asked, FrieslandCampina spokesperson Jan Willem ter Avest stated that he would neither confirm nor deny the alleged interest, as they always do with takeover, sale or merger rumors.

Not small beer
At the end of July, Fonterra engaged several investment banks, including the American JP Morgan, to manage the sale. The sales process will probably only really gain momentum at the end of this year. In addition to FrieslandCampina, various private equity investors are said to be interested. A takeover of Saputo or Bega, two other major dairy processors in Australia, seems unlikely in advance. This is because the local competition authorities will most likely put a stop to this.

Dairy farmers in Australia were already disappointed that Fonterra wants to get rid of the factories. They fear that the reduced competition between processors will not benefit the milk price. In addition to FrielandCampina, French competitor Lactalis is also mentioned as a possible buyer. This is a more obvious name, as the French dairy giant is already active in Australia and has an aggressive growth strategy globally.

In any case, Fonterra's activities in Australia are not small and are valued by analysts at €1,8 billion. Fonterra processes 1,4 billion liters of milk annually in Australia, spread across eight factories in the states of Victoria and Tasmania.

Shrinkage strategy in recent years
It is difficult to estimate to what extent FrieslandCampina's interest is serious. The Dutch dairy giant has certainly not had a growth strategy in recent years. So they left Germany last year. In 2021, FrieslandCampina closed its doors in Russia, just before the war in Ukraine broke out. Several factories have also been closed in the home markets in recent years. FrieslandCampina has invested in recent years two new factories in Southeast Asia. Two modern production locations were recently completed in Indonesia and Malaysia, with which they believe they can respond to interesting growth markets in that region.

Australia is also, in theory, a hub to this region. Moreover, Australian dairy farming is extremely suitable for securing the supply of raw materials in the form of milk for the future according to Western standards. Something that will probably become more difficult in Europe. The opposite seasonal pattern in milk production could also make it interesting to better spread sourcing. After years of decline, the Australian dairy industry is growing again. In the last production year 2023/24, production increased by about 3% thanks to better weather conditions. FrieslandCampina is already active in Australia on a limited scale. In 2009, FrieslandCampina Domo opened a prebiotics factory called Great Ocean Ingredients together with the Australian Warrnambool. They now share this joint venture with Saputo. 

Overcoming skepticism
If the top management of FrieslandCampina actually want to go on an adventure Down Under, they will first have to convince the cooperative's member council to agree to this. There is sometimes some skepticism among the cooperative supporters about foreign participations. Other stakeholders, such as credit rating agency Fitch, for example, are also cautious. They have been insisting for years on a conservative course for the Dutch dairy giant in the field of mergers and acquisitions. FrieslandCampina is still in the middle of a reorganization, although somewhat surprisingly the company is back on course for a record profit in 2024, as shown by the recently published half-year figures.