What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
A co-op spokesperson told Dairy News that it will continue to assess market conditions as the process evolves.
The co-operative is considering both a trade sale and an initial public offering (IPO) for the businesses, which include household name brands such as Anchor and Mainland as well as the Fonterra Oceania and Fonterra Sri Lanka operations. If the for-sale assets are to be listed on the stock exchange, it will be under the name of Mainland Group.
However, as countries grapple with President Trump’s onagain, off-again additional import tariffs, several US companies have paused their initial public offerings in recent days including UKbased Klarna, the specialty lending and online payments provider, and online ticketing company StubHub. Both were set to list on the New York Stock Exchange. Global markets are spiralling, with US indices marking their worst losses since 2020. Global business analysts fear it would be very tricky to get any deal to the finish line as cost of debt is expected to go up and it will be harder to ascertain valuations of companies.
Forsyth Barr senior equity analyst, Matt Montgomerie believes the market turmoil should have a negligible impact on Mainland Group’s direct operations.
However, he agrees that there is downward pressure on valuations, and this could impact Mainland if Fonterra chooses the IPO option.
“The market turmoil is clearly in the face of tariffs along with global and US economic growth fears,” Montgomerie told Dairy News.
“In reality, this should have a negligible impact on Mainland’s direct operations.
“This said, at this point there is clear downward pressure on valuations. The valuation impact could flow through to Mainland if it is to be an IPO candidate, but the world is evolving at a rapid pace currently, so this is difficult to call at this juncture.”
Montgomerie points out it will still be some time before the IPO option is finalised. “While it could be considered by Fonterra, this is not our base case,” he adds.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises consumer, foodservice and ingredients businesses. Fonterra Sri Lanka comprises consumer and foodservice businesses. Fonterra says it's decision on the future of its consumer business would need farmer approval.
Montgomerie doesn’t think the recent turmoil would’ve altered the trade sale vs IPO probabilities to any great extent.
“The trade sale will come down to the opportunities prospective buyers see to create value above what Fonterra has failed to deliver – whether that is through cost synergies or a sharper focus on the brands.”
He adds that the ‘in-scope’ or Mainland EBIT growth for first half of 2025 was +16% compared to same period last year.
“If these growth rates can be held for the remainder of FY25, this represents an FY25 Mainland Group EBIT of $231m, which would likely be at the upper end of what it has delivered historically.
“So, while valuations are down from recent peaks, Mainland Group earnings versus history are relatively well placed.”
