1 00:00:00,080 --> 00:00:02,920 Speaker 1: Fonterra is confirmed it's going to sell some consumer businesses, 2 00:00:02,960 --> 00:00:06,560 Speaker 1: including brands like Anchor, Mainland and Carpety. The sale could 3 00:00:06,600 --> 00:00:09,160 Speaker 1: potentially bring in billions for the Dairy co operative up 4 00:00:09,160 --> 00:00:12,360 Speaker 1: to three billion. To decide how to sell the businesses, 5 00:00:13,039 --> 00:00:16,520 Speaker 1: either through a direct sale or an IPO, all cards 6 00:00:16,520 --> 00:00:19,360 Speaker 1: are kind of on the table. Matt Montgomery is with 7 00:00:19,440 --> 00:00:22,640 Speaker 1: Forsyth Bar He's a senior analyst equities there. Matt, good morning, 8 00:00:23,520 --> 00:00:25,639 Speaker 1: come on, thanks for having me, Thanks so much for 9 00:00:25,680 --> 00:00:28,000 Speaker 1: being with me. First of all, who do you think 10 00:00:28,040 --> 00:00:28,560 Speaker 1: would buy this? 11 00:00:30,280 --> 00:00:32,560 Speaker 2: Yeah, there's still a water, A lot of water's going 12 00:00:32,600 --> 00:00:37,080 Speaker 2: to the bridge. Clearly they said yesterday they've received meaningful 13 00:00:37,120 --> 00:00:40,400 Speaker 2: buyer interest in the businesses and as you mentioned, that's 14 00:00:40,440 --> 00:00:43,519 Speaker 2: either through there were trade sale and if that was 15 00:00:43,560 --> 00:00:46,280 Speaker 2: the case, I would expect it to be the more 16 00:00:46,280 --> 00:00:50,320 Speaker 2: akin to the large dairy companies like Nesle, the known 17 00:00:51,000 --> 00:00:54,560 Speaker 2: Black Palaces or they have also mentioned an IPO. And 18 00:00:54,600 --> 00:00:58,560 Speaker 2: the other thing I'd add is there could be multiple 19 00:00:58,560 --> 00:01:02,840 Speaker 2: buyers that play to every chance. It's not cut into 20 00:01:03,000 --> 00:01:06,040 Speaker 2: one one large sale. There could be multiple buys. 21 00:01:06,319 --> 00:01:09,440 Speaker 1: So you could have Meslade taking capity and then another 22 00:01:09,440 --> 00:01:10,199 Speaker 1: big boy Wow. 23 00:01:11,120 --> 00:01:14,120 Speaker 2: Yeah, maybe not quite that level of granularity, but they 24 00:01:14,160 --> 00:01:17,039 Speaker 2: are talking about Australia, then the consumer brands and some 25 00:01:17,120 --> 00:01:21,080 Speaker 2: businesses in Sri Lanka, so there are different ways that 26 00:01:21,120 --> 00:01:21,880 Speaker 2: it could be cut. 27 00:01:23,319 --> 00:01:25,280 Speaker 1: What are the benefits of an IPO. 28 00:01:26,920 --> 00:01:31,199 Speaker 2: Yeah, I think the important thing there from a sheer 29 00:01:31,240 --> 00:01:34,200 Speaker 2: macket point of view, would be able to continue to 30 00:01:34,240 --> 00:01:39,080 Speaker 2: have judgment and access of those key businesses for New 31 00:01:39,160 --> 00:01:44,640 Speaker 2: Zealanders and shareholders alike. It's clearly been a relatively denign 32 00:01:44,760 --> 00:01:47,720 Speaker 2: period in the listed market for IPO, so that would 33 00:01:47,760 --> 00:01:52,240 Speaker 2: be helpful. Whereas if there was a trade self and 34 00:01:52,760 --> 00:01:56,520 Speaker 2: you could envisage that possible buyers, there could be reasonable 35 00:01:56,560 --> 00:02:01,360 Speaker 2: synergies for those businesses through sales and distribution where they 36 00:02:01,400 --> 00:02:04,560 Speaker 2: already have quite established networks globally. 37 00:02:05,520 --> 00:02:09,639 Speaker 1: Why did we why did Fonterra I should say, invest 38 00:02:09,720 --> 00:02:13,120 Speaker 1: in and start and purchase some of these businesses in 39 00:02:13,160 --> 00:02:17,160 Speaker 1: the first place? What was the theory? 40 00:02:17,320 --> 00:02:20,280 Speaker 2: The idea was to shift the strategy towards value our 41 00:02:20,440 --> 00:02:23,919 Speaker 2: products and to realize more value per drop of milk 42 00:02:24,360 --> 00:02:29,480 Speaker 2: for farmers. Essentially, I think ultimately, if we look back 43 00:02:29,520 --> 00:02:33,320 Speaker 2: through time, the consumer businesses haven't delivered the level of 44 00:02:33,480 --> 00:02:37,079 Speaker 2: returns and earnings that VI would that farmers and shareholders 45 00:02:37,120 --> 00:02:41,560 Speaker 2: would intimately expect. And that's a combination of challenges to 46 00:02:41,600 --> 00:02:44,640 Speaker 2: operate three different milk pools. If you think about Fontira's 47 00:02:44,680 --> 00:02:49,560 Speaker 2: business with food service, ingredients and consumer and also just 48 00:02:50,000 --> 00:02:54,000 Speaker 2: lack of scale when you're looking to launch a number 49 00:02:54,000 --> 00:02:57,480 Speaker 2: of brands and a number of different jurisdictions around the world, 50 00:02:58,320 --> 00:03:01,360 Speaker 2: that creates challenges which back to the level the cost 51 00:03:01,400 --> 00:03:03,560 Speaker 2: space that you need to invest in the business for 52 00:03:03,600 --> 00:03:07,560 Speaker 2: the revenue that you can generate. So we think focusing 53 00:03:07,600 --> 00:03:11,760 Speaker 2: on the core goes business, be it food service and ingredients, 54 00:03:11,800 --> 00:03:15,120 Speaker 2: as were Fontierra's future this life. 55 00:03:15,880 --> 00:03:18,400 Speaker 1: Was value added a fad because we were told, weren't 56 00:03:18,400 --> 00:03:20,640 Speaker 1: we that we needed to add value to the still 57 00:03:20,680 --> 00:03:24,400 Speaker 1: told actually we need to add value to our you know, 58 00:03:24,440 --> 00:03:27,440 Speaker 1: our commodities and order that we get ahead as a country, 59 00:03:27,440 --> 00:03:31,480 Speaker 1: et cetera. Has this shown that perhaps the experiment hasn't worked. 60 00:03:33,000 --> 00:03:35,400 Speaker 2: I wouldn't had the found I mean, the other companies 61 00:03:35,400 --> 00:03:41,800 Speaker 2: have been successful, but like I say, there is Fonterra 62 00:03:41,960 --> 00:03:45,040 Speaker 2: haven't been as successful as they would like through a 63 00:03:45,120 --> 00:03:47,040 Speaker 2: number of years now. It hasn't just been one or 64 00:03:47,040 --> 00:03:51,160 Speaker 2: two challenging periods. It's been a prolonged period of time, 65 00:03:52,480 --> 00:03:54,960 Speaker 2: but it has worked for other businesses, and that's why 66 00:03:55,000 --> 00:04:01,520 Speaker 2: we see other buyers as ultimately better owners of these brands. 67 00:04:02,200 --> 00:04:05,520 Speaker 1: Potentially three billion dollars. What happens to the money they 68 00:04:05,560 --> 00:04:06,520 Speaker 1: sell them? 69 00:04:07,240 --> 00:04:11,600 Speaker 2: Yeah, Fontira has stated that they're targeting a significant capital 70 00:04:11,680 --> 00:04:14,960 Speaker 2: return if you look at Fontira's balance sheet, and a 71 00:04:15,120 --> 00:04:17,960 Speaker 2: very good, very good chance, as good as it ever 72 00:04:18,040 --> 00:04:22,400 Speaker 2: has been. So you know, we would expect the large, 73 00:04:22,480 --> 00:04:26,679 Speaker 2: large majority of the capital returns to ultimately be returned 74 00:04:26,680 --> 00:04:31,080 Speaker 2: to farmers through probably a special dividend of some kinds. 75 00:04:32,120 --> 00:04:34,120 Speaker 1: Thanks so much for your time. Matt Montgomery, who's the 76 00:04:34,200 --> 00:04:37,080 Speaker 1: Forsyth Bar senior analyst Equities with us talking about the 77 00:04:37,240 --> 00:04:40,440 Speaker 1: sale of Fonterra's well potential sale and it would be 78 00:04:40,520 --> 00:04:43,800 Speaker 1: sometime in the future, potentially a year before this goes 79 00:04:43,839 --> 00:04:48,279 Speaker 1: ahead of its consumer businesses, brands like Anchor, Mainland Carpany 80 00:04:48,560 --> 00:04:51,520 Speaker 1: are worth up to three billion bucks. For more from 81 00:04:51,520 --> 00:04:54,800 Speaker 1: Early Edition with Ryan Bridge. Listen live to news talks. 82 00:04:54,800 --> 00:04:58,080 Speaker 1: It'd be from five am weekdays, or follow the podcast 83 00:04:58,120 --> 00:04:59,039 Speaker 1: on iHeartRadio.