Fonterra Co-Operative Group Ltd share price up, expands reach in China

The largest dairy exporter in the world – Fonterra Co-Operative Group Ltd revealed in an official statement today that it is to acquire a stake in a Chinese infant formula maker. The deal is estimated to NZ$615 million ($515 million) with a purchase price of 18 yuan ($2.93) per share, equaling about a 20% premium to the last trading price prior to the deals announcement.

Fonterras Chief Executive Officer, Mr. Theo Spierings shared in the companys statement, which was cited by the Financial Times: “China is our number one market and the proposal to join forces with Beingmate will be an important building block in Fonterra driving volume and value, and taking a step forward in terms of being a globally relevant co-operative.”

According to the companys statement, it will acquire a 20% stake in Beingmate Baby & Child Food Co. Ltd, which is a subsidiary of the fourth-biggest infant formula maker in China. As Fonterra revealed, a joint venture between the companies is also planned to be set up in order to purchase the Darnum factory of Fonterra in Australia.

The deal is expected to provide Fonterra with access to the large distribution network of the Chinese company, giving it a strong local partner at a time when public concern over food safety is constantly growing.

Apart from the required government and regulatory approvals, the deal must also be accepted by Beingmates shareholders, especially considering the fact that the government is trying to protect Chinas infant-food industry from foreign competitors.

One of the partners at the consulting firm AT Kearney Inc. – Mr. Torsten Stocker commented on the deal for Bloomberg: “There is still a large number of infants being born and there is still a lot of underlying growth. Breastfeeding rates are lower than in other markets, and parents will always buy the best for their babies.”

Fonterra Co-Operative Group Ltd was 0.49% up to close at NZD 6.15 per share in Wellington, marking a one-year change of -10.87%. The company is valued at NZD 9.78 billion.