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New Zealand’s largest company Fonterra (ASX: FSF) has agreed to the sale of its 50% share of DFE Pharma for NZ$633 million, bringing the funds available for debt reduction to over NZ$1 billion from assets sales this year.

Fonterra CEO, Miles Hurrell, said the company – which is responsible for approximately 30% of the world’s dairy exports – set itself a tough initial target for debt reduction and is pleased with the progress it is making.

“It’s an important milestone in our Co-op’s plan to lift our business performance,” Mr Hurrell said.

“A year ago, we started a full portfolio review to re-evaluate every investment, major asset and partnership, to make sure they were still right for the Co-op.

“In March, we advised that we were reviewing our share of DFE Pharma, a 50% joint venture with Royal Friesland Campina. DFE Pharma was identified for sale due to the substantial capital required for its future growth.

“We are now at the end of that process and have sold our share of DFE Pharma to CVC Strategic Opportunities II, a fund managed by CVC Capital Partners, a leading private equity and investment advisory firm, managing approximately US$83 billion of assets in 73 companies worldwide,” Mr Hurrell says.

The NZ $633 million sale to CVC Strategic Opportunities II is made up of a cash payment of NZ$537 million, payable on completion of the sale, plus an interest-accruing vendor loan of NZ$96 million, for a term of up to 15 years.

Built into the deal is a potential additional payment of up to NZ$44 million based on DFE’s performance over two years.

Mr Hurrell said Fonterra is committed to the ongoing success of the DFE Pharma business through a long-term supply agreement and the interest- accruing vendor loan.

A big part of the success of DFE Pharma has been the high-quality lactose produced by the team at Fonterra’s Kapuni site in Taranaki and it is a good outcome to be able to continue to supply this.

“This milestone, along with the significant inroads made in our capital and operational expenditure during FY19, makes for a good initial chapter in our business turn-around. It puts us on the right footing to deliver our new strategy and a sustainable lift in our performance.”

With dairy operations in Australia and NZ, Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-operative owned by around 10,500 New Zealand farmers. The company has revenue exceeding NZ$17.2 billion.

www.fonterra.com

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