Dairy co-op Fonterra has agreed to sell its consumer and associated businesses to French food group Lactalis for $3.845 billion - well above market expectations.

The sale, which has been over a year in the making, is subject to regulatory approvals.

Fonterra confirmed the agreement in an announcement this morning posted to the NZX.

A farmer shareholder vote will be held in late October or early November with a notice of meeting to be issued in October.

The co-op said it is targeting a tax-free capital return of $2.00 per share from the sale.

The sale would include a long-term agreement for Fonterra to sell milk and ingredients to Lactalis.

Subject to the satisfaction of conditions, the sale is expected to complete in the first half of 2026.

Fonterra’s FY25 earnings guidance of 65-75 cents per share remains unchanged.

The consumer business was estimated by market analysts to be worth $2-$3b.

Fonterra said it had also looked at an initial public offering and sharemarket listing for the business.

Forsyth Barr senior analyst Matt Montgomerie said Fonterra had achieved a good price.

“We view this as a very good outcome - our trade sale expectations were around $3b,” he said.

“We view this as a very good outcome for what has been a perennial under performing business for many years,” Montgomerie said.

As part of the sale agreement, Fonterra will continue to supply milk and other products to the divested businesses, meaning New Zealand farmers’ milk will still be found in iconic dairy brands including Anchor and Mainland.

Fonterra chairman Peter McBride said over the past 15 months, the board had thoroughly tested the terms and value of both a trade sale and initial public offering (IPO) as divestment options.

“Following a highly competitive sale process with multiple interested bidders, the Fonterra board is confident a sale to Lactalis is the highest value option for the co-op, including over the long term,” he said.

Alongside a strong valuation for the businesses being divested, the sale allowed for a full divestment of the assets by Fonterra, and a faster return of capital to the co-op’s owners, when compared with an IPO.

“This, coupled with the firm belief we have in Fonterra’s long-term strategy, gives the board the confidence to unanimously recommend this divestment to shareholders for approval.”

Fonterra CEO Miles Hurrell said the sale was a great outcome for the co-op.

“As the world’s largest dairy company, Lactalis has the scale required to take these brands and businesses to the next level. Fonterra farmers will continue to benefit from their success, with Lactalis to become one of our most significant Ingredients customers.

“At the same time, a divestment of these businesses will allow Fonterra to deliver further value for farmer shareholders and New Zealand by focusing on our world leading Ingredients and Foodservice businesses, through which we sell innovative products to more than 100 countries around the world, from our home base here in New Zealand,” Hurrell said.

Lactalis CEO Emmanuel Besnier said the sale would significantly strengthen the company’s strategy across Oceania, Southeast Asia and the Middle East.

“Combining the Fonterra consumer business operations and market leading brands with our existing footprint in Australia and Asia will allow Lactalis to further grow its position in key markets,” Besnier said.

The divestment comprises the sale of shares in Mainland Group Holdings Limited, a New Zealand incorporated holding company that is currently owned by Fonterra.

Australia’s Bega Cheese - a key customer of Fonterra’s - had been interested in the Australian assets and had challenged the sale process in court.

Fonterra said inclusion of the Bega licences held by Fonterra’s Australian business would be confirmed once a dispute with Bega was resolved.

“If for some reason the Bega licences are not included in the sale, Fonterra expects to receive a fair value payment from Bega for the licences which would need to be determined at the time,” Fonterra said.

Under the terms relating to the sale, Fonterra will continue to supply raw milk, dairy ingredients and products to the divested businesses under long-term supply agreements.

Alongside shareholder approval, the divestment is conditional on final regulatory approvals being received from the Overseas Investment Office in New Zealand, the Foreign Investment Review Board in Australia, as well as relevant competition regulators and foreign direct investment regulators in certain countries including Kuwait, New Caledonia and Saudi Arabia.

In July 2025, the Australian Competition & Consumer Commission announced it would not oppose the proposed acquisition by Lactalis in Australia.

If conditions are met, the transaction is expected to complete in the first half of the 2026 calendar year, Fonterra said.

On the stock exchange, Fonterra Shareholders’ Fund units were up 24c or 3.45% in early morning trading, from $6.96 to $7.20.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.