On Thursday the dairy co-operative announced that it was considering selling the favourite Kiwi ice cream company as part of its $800m debt reduction plan. While a sale appears to be the preferred option it is also open to retaining part or whole ownership of the company.
What is clear is that Fonterra wants the company to stay in New Zealand hands.
The Tip Top brand and its manufacturing plant in Mt Wellington would be included in the sale review, as well as Fonterra’s Kapiti ice cream brand which is part of the Tip Top portfolio.
The 5.5 hectare Mt Wellington Tip Top site, owned by Fonterra, has a 2017 CV of $34 million.
About 300 people are employed in Fonterra’s Tip Top team. Fonterra chief executive Miles Hurrell said he expected there would be no impact on those jobs if a sale went ahead.
Fonterra bought Tip Top off Western Australian company Peters and Brownes in 2001. It is not clear what Fonterra paid for it.
But the dairy company said the Tip Top business had reached maturity as an investment for it and required a level of investment beyond what it was willing to make.
Here are a few New Zealand candidates who may (or may not) want to make the investment.
The billion dollar man
New Zealand’s richest man would Graeme Hart could buy Tip Top in a heartbeat.
In fact, a business he used to own, Goodman Fielder, did own Tip Top from the late 1980s to early 1990s.
Hart, from Auckland, has a net worth estimated to be anywhere between $7.5 billion and $14b, and was last year listed by Forbes magazine as the 133rd wealthiest person on the planet.
Just this Friday he donated $10m to the University of Otago to build a new dental school in South Auckland.
The media shy businessman clearly has an appetite for food investments, earlier this year buying Hansells for $15m. The Hansells brands include Aunty Betty’s, Weight Watchers, and Vitafresh.
Hart did not respond to questions about whether he’d be interested in adding an ice cream company to his portfolio.
Grant Williamson, director or share brokerage company Hamilton Hindin Greene, said Tip Top was a suitable candidate to be listed on the New Zealand stock market the NZX.
That would be done through an initial public offering (IPO), the process of raising capital by selling shares in a company to the public and institutional investors before it lists on a stock exchange.
“The company in its own right would be big enough for a decent IPO.”
Tip Top was a good brand that most New Zealanders knew well, he said.
“Investors would certainly have a look at that because it’s something that’s so well liked in New Zealand.”
The NZX was ripe for a new listing, he said. Although with the markets currently experiencing a correction the timing for an IPO may not result in the best price for Fonterra, he said.
“The NZX would welcome it. We could certainly do with a few additions to the board.”
He said if the shares represented good value for money then institutional investors such as KiwiSaver fund managers would be interested in a slice of Tip Top, he said.
The cool kids
Lewis Road Creamery, the boutique, organic dairy company, has been a driving force behind the rise in popularity in premium icecream in New Zealand.
Its founder Peter Cullinane said it was not interested in buying the Tip Top brand.
“It would be too big for us.”
He said Tip Top was an iconic New Zealand brand and he was surprised Fonterra was considering selling it.
“It’s a big jewel in their crown.”
There were very few New Zealand investors who would have the money to buy Tip Top, he said.
“Especially if it needs significant investment.”
Fonterra exported very few Tip Top products, and Cullinane said taking it global would come at a huge cost.
“You’ve got to start from scratch and that would be reasonably challenging.”
The ultimate way for Tip Top to stay in New Zealand hands would be for the NZ Super Fund to buy it.
The Government set up the NZ Super Fund in 2001 as a way for New Zealand to save now in order to meet future superannuation costs for those who have reached retirement.
The fund is one of the largest institutional investors in New Zealand with $5b invested in New Zealand, including more than $1b in the local share market.
However, New Zealand investments make up a very small amount of its total portfolio so when it invests in New Zealand it needs a high level of confidence that the new investment will deliver a better return than it would be able to get from a passive, listed alternative.
It also requires New Zealand investments to deliver a return that compensates for the risk of concentrating too much of its portfolio at home.
“As one of only a few investors of scale in the country, we also maintain a high level of price discipline,” it says.
That might make for a cut-throat bargaining process for Fonterra.
Current NZ Super Fund New Zealand investments include forestry, retirement villages, Kiwibank, Housing developments, Insurance and IT.
The Super Fund made headlines recently for expressing interest in investing in Auckland’s planned light rail. Why not add an ice cream company to its asset mix?