👉 Background: Fonterra is New Zealand’s massive dairy co-op that was founded in 2001 and is one of the biggest dairy exporters in the world. Fonterra’s Mainland Group makes some of the biggest Aussie and Kiwi staples like Mainland cheese, Perfect Italiano, and Western Star butter.

‍👉 What happened: Now, Fonterra has sold off its Mainland Group consumer brands to the French dairy behemoth Lactalis for $3.8 billion NZD. And, if the licences for Bega cheese are included, Lactalis will throw in an extra $375 million NZD. Lactalis is the world's largest dairy company. It owns Cracker Barrel, as well as about 20 other European cheese brands. In Australia, they’re the owner of Pauls and Oak flavoured milk.

‍👉 What else: Interestingly, Fonterra considered listing Mainland on the ASX. But then it got into a hot bidding war and decided that a trade sale offered the best value.

What's the key learning?

‍💡When a company wants to sell off a division, it needs to weigh up two main avenues of selling: a trade sale or an initial public offering (IPO).

💡A trade sale means selling to another company, which is often a strategic buyer in the same industry who sees value in growing their portfolio. This usually delivers speed and certainty. But it’s hard to know whether you actually got the best price... because it never went to the public markets. An IPO is when you split out the division and list it on a stock exchange which allows investors to buy shares. IPOs can potentially unlock higher long-term value if the market is hot, but they’re riskier and slower.

💡While an IPO might have been an option, the recent track record is looking a bit mouldy. Of the 89 companies that floated on the ASX in 2022, only 29% were trading above their IPO price just a year later. In other words, Fonterra avoided rolling the dice on market sentiment and chose the certainty of cash in hand.