New Zealand-based dairy co-operative Fonterra has embarked on an ambitious plan to trim its product portfolio and focus on the international markets. Against this backdrop, the company is selling off its New Zealand ice cream business, Tip Top, to Froneri for US $250.2m,

Shagun Sachdeva, Consumer Insights Analyst at GlobalData, a leading data and analytics company, offers her views on the deal:

“The strategic deal is an important one for Fonterra as it was looking to refocus its strategy and pay attention to global markets. Fonterra’s decision to sell-off its iconic 80 year old ice-cream brand seems to be well-thought-out and perfectly-timed since the company was attempting to reduce its debt levels and regulate its operating expenses as a result of its declining margins due to increased competition for milk supply. Despite all this, the overall demand for Fonterra products remained strong in international markets, especially Asia, which makes it imperative for Fonterra to tap the opportunity to prioritise these markets.

“The rationale behind Froneri purchasing Tip Top is a part of its cumulative move to enhance its scale of operations and strengthen its market share. Froneri aims to become world’s best ice cream company from third largest ice cream manufacturer in the world. It is evident that Froneri can capitalise on longstanding Fonterra’s brand power and operational capacity to widen its business horizon and bring more innovation in the local market.

“The deal seems to be a win-win for both the giants as it offers an excellent opportunity to both the companies to leverage on the synergies. Froneri can capture the rapidly growing ice cream market in New Zealand and the Pacific by relying on its expertise in the ice-cream industry and leveraging on brand success in the local market, eventually expanding the brand presence to other markets, especially Asia. At the same time, Fonterra, gaining about US $65.37 million above the book value from the deal, has played a pivotal role in securing a good price for their farmers and unit holders by keeping the negotiation terms in favour of its stakeholders.”