New Zealand dairy giant Fonterra has agreed to sell its 50 per cent stake in pharmaceutical company DFE Pharma for $NZ633 million ($590 million) as it looks to reduce its debts.
Fonterra’s chief executive Miles Hurrell said the sale, along with the proceeds from other recent sales including Tip Top ice cream, gave the company more than $NZ1 billion to put towards debt reduction.
“We set ourselves a tough initial target for debt reduction and we are pleased with the progress we are marking,” Mr Hurrell said in a statement to the ASX on Wednesday.
The $NZ633 million sale to CVC Strategic Opportunities II, a fund managed by private equity and investment advisory firm CVC Capital Partners, is made up of a cash payment of $NZ537 million along with an interest-accruing loan of $NZ96 million for a term of up to 15 years.
“This milestone, along with the significant inroads made in our capital and operation expenditure during the financial year 2019, makes for a good initial chapter in our business turnaround,” Mr Hurrell said.
It comes as Fonterra unveiled $NZ820 million in write-downs in August after a lengthy review of its key assets, and forecast a loss of more than $NZ500 million for the 2019 financial year.
The sale is subject to regulatory approval, but Mr Hurrell said Fonterra would continue to supply “high-quality lactose” to DFE Pharma, which works with pharmaceutical firms to develop pulmonary drugs.
“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,” Mr Hurrell said.
Earlier this month Fonterra delayed its annual reporting date and will now report on Thursday, September 26.
The milk producer has previously said it expects its second consecutive full-year loss to be between $NZ590 million to $NZ675 million due to “significant adverse” one-off adjustments and the drought impacting its Australian business.