Fonterra in European lactose deal

Giant diary co-operative Fonterra is paying $53 million to expand its European joint venture selling pharmaceutical-grade lactose.

Its 50:50 joint venture DMV-Fonterra Excipients (DFE) will buy the product range of FrieslandCampina Domo-Pharma, the pharmaceutical lactose business and manufacturing unit of Dutch dairy group Royal FrieslandCampina, the parent of its joint venture partner, DMV.

The total transaction value is $106m - more than the $100m value which Fonterra put on the entire global pharmaceutical lactose business when it initially announced the joint venture in April 2006 - and makes Fonterra's joint venture the world's biggest player in "fine" lactose.

Lactose makes up between 2 percent and 8 percent of milksolids. Fonterra produces about 1.3 billion kg of milksolids each season, but only some of the lactose is purified for pharmaceuticals and fine chemicals - the rest is used in foods.

The transaction is subject to regulatory approvals but is likely to complete in March 2010, according to Fonterra's managing director for ingredients, Andrei Mikhalevsky.

Synergies would be created by combining the two companies' knowledge bases and research and development capabilities. These would benefit the shareholders of both Fonterra and Royal FrieslandCampina, as well as customers, Mr Mikhalevsky said.

Fonterra began its expansion in the sector when it built a $25m factory at Kapuni for its subsidiary Lactose New Zealand to supply GlaxoSmithKline with half its global requirement for inhalation-grade lactose. The lactose is used as a carrier for the active ingredients of a medication - such as asthma treatments and other inhaled medicines.

That deal was a direct result of concerns over the possibility that northern hemisphere cattle may face future health issues similar to foot and mouth disease or mad cow disease, and a New Zealand supplier was seen as spreading the "geographical risk".

- NZPA