Bonlac to update Suppliers on Fonterra Proposal

Bonlac to update Suppliers on Fonterra Proposal

Bonlac Supply Company (Bonlac) and New Zealand's Fonterra Cooperative Group (Fonterra), will present the broad principles of a proposal designed to deliver a viable long term future for Bonlac Foods Limited (Bonlac Foods) to Bonlac's Supplier Shareholders.

The proposal, which is subject to approval by Bonlac's Supplier Shareholders, will be outlined at a series of meetings commencing on Sunday 8 June, 2003.

Under the proposal Fonterra would increase its current 25 per cent stake in Bonlac Foods to 50 per cent. Bonlac Supply Company would own the other 50 per cent.

Bonlac Foods would focus on milk collection and processing. Both cooperatives would contribute to the partnership according to their core strengths. Bonlac Supply Company would manage supplier relations. Fonterra would buy all product manufactured by Bonlac Foods and market that product through its global sales and marketing networks.

The International Marketing Agreement between Fonterra and Bonlac Foods would be replaced with a comprehensive supply agreement. Fonterra would forgo its existing right to special dividend payments from Bonlac Foods and contribute management services including administration, finance, human resources, operational and manufacturing expertise to Bonlac Foods to further reduce costs. It would also provide its support in negotiations designed to restructure Bonlac Foods' debt portfolio to provide a more efficient funding mix.

Bonlac Foods' intention to refocus on its core milk collection and processing activities would see its domestic ingredients business transferred to Fonterra as part of the total proposal.

The chairmen of both cooperatives welcomed the partnership proposal.

Chairman of Bonlac, Noel Campbell said, "The Bonlac Board is confident the proposal will ensure our long-term sustainability, a competitive milk price for our suppliers, full value for Bonlac shares and the recommencement of dividend payments following a return to profitability.

"We will be presenting this proposal to our Supplier Shareholders in Tasmania and Victoria over the coming week and at this stage anticipate asking them to vote on it at the end of July.

"To ensure that we have strong support from our suppliers for the proposal we have agreed with Fonterra that we will not proceed unless we have around 75 per cent of those suppliers voting in favour of the proposal.

"The proposal is subject to several preconditions, including Foreign Investment Review Board and funding approval.

"An independent expert will assess the proposal and a report will be provided to Supplier Shareholders with the Explanatory Memorandum.

"The Bonlac Board believes that Fonterra's greater involvement will ensure Bonlac Foods continues to be a significant and competitive player in Australia's dairy industry.

"Bonlac Foods needs to make major changes to its business in order to secure its future and it cannot accomplish this alone. Under the proposed partnership we will have greater opportunities to structure programs to retain and grow milk supply than we could as a stand-alone business.

"It also gives us the opportunity to work more closely with one of the world's largest and most progressive farmer-owned dairy exporters," Mr Campbell said.

Fonterra chairman Henry van der Heyden said the deal would benefit both parties.

"Shareholders of both Fonterra and Bonlac Supply Company stand to benefit from the partnership which will secure Bonlac's future and consolidate Fonterra's presence in Australia. We're confident we can add real value to Bonlac and its farmers through our management and manufacturing experience and international marketing networks."

Mr van der Heyden said under the proposal Fonterra's shareholders would share alongside Bonlac Supply Company shareholders in the expected improvement in the Australian cooperative's financial performance.

"Fonterra has a well-established presence in Australia through our ownership of New Zealand Milk (Australasia) - formerly Australasian Food Holdings - and our stake in National Foods.

"We're committed to creating a globally competitive force in the Australasian dairy industry - the consolidation of our investment in Bonlac is consistent with that strategy," said Mr van der Heyden.

Bonlac shareholders and noteholders will be provided with further information on the proposal later this month.

Neither party will be making any further comments until Bonlac shareholder meetings are completed on June 12.

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