Fonterra is buying the minority interests in its Chilean processing partner, Prolesur, to streamline its businesses and give it more options for the future.
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Soprole take dairy ingredients from Prolesur, both owned by Fonterrra, and makes non-Fonterra branded products for the Chilean market.

Among the options could be an exit from the dairy industry in Chile after several decades of New Zealand involvement, firstly by the Dairy Board in 1986.

Fonterra has agreed to buy 13.6% of Prolesur for NZ$29.3 million from Fundacion Isabel Aninat, a church-owned charity.

The parties were in dispute over Prolesur’s commercial processing relationship with another Fonterra Chilean subsidiary, Soprole, a dairy consumer products and ingredients company.

Independent Fundacion directors alleged the pricing terms for cheese heavily favoured Soprole, not leaving a fair margin for Prolesur.

But a complaint to the Chilean prosecution service was not proceeded with because of insufficient evidence to support a case.

It appears Fonterra’s purchase of the Fundacion’s shareholding announced was at a premium price to the book value and the ownership transfer is still being completed.

A remaining 0.1% of shareholding in private hands should also accept the Fonterra offer.

The offer price values Prolesur at $215m and Soprole is reportedly valued at more than twice that but Fonterra does not publish that number.

Fonterra is not obliged to seek approval from the Chilean government or any equivalent of our Overseas Investment Office.

Prolesur has two plants in southern Chile, at Osorno and Los Lagos, capable of processing collectively about 2m litres of milk a day into milk powder, butter and cheese.

Soprole then takes the dairy ingredients and makes added-value, non-Fonterra branded products for the domestic market.

Fonterra said it collects from 300 dairy farms in total in Chile but its share of the milk market is not published.

It is alleged Soprole has lost overall market leadership in consumer goods in recent years to Nestle and two locally owned-companies but it retains some category leadership.

Integrated operations would provide greater co-ordination of milk collection and processing, possible further alignment of manufacturing and the supply chain, and removal of any administrative duplication.

A few days after the buyout the resignation of Soprole’s chief executive Valeria Flen Silva was announced. He will be replaced by civil engineer Sebastian Tagle Perez from January 20. He rejoined Soprole after a six-year absence working for Coca Cola in Chile.

Perez is tasked with ensuring Soprole’s leadership in the dairy market, recovering levels of operational efficiency and generating the value expected by the shareholders, chairman Hugo Covarrubias Lalanne said.

A Fonterra representative declined to make any further comment about the future of Soprole-Prolesur under Fonterra’s new strategy of favouring NZ milk.

When announcing the share buy Fonterra said both Prolesur and Soprole are strong businesses but their recent performance had been affected by challenging market conditions.

AUSTRALIA – The government of Australia has awarded funds to two local dairy companies, Purearth and Australian Consolidated Milk, in an effort to boost local milk production.

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