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Nestlé and New Zealand's Fonterra to Enter into Dairy Alliance for the Americas

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Nestlé S.A., the world's largest food group, and New Zealand's Fonterra Co-operative Group Ltd., the world's most important exporter of dairy products (resulting from the merger of the major New Zealand milk cooperatives and the New Zealand Dairy Board and formerly known as Globalco), today announced that they are negotiating an alliance to create a number of joint ventures in the dairy business.

These ventures will be restricted to North, Central and South America and are subject to due diligence as well as to regulatory and other clearances. They will cover a wide range of dairy products, including shelf stable as well as chilled refrigerated milk foods and beverages under their respective existing brands. Infant formula, evaporated and condensed milks, certain speciality products, cheese and butter are not covered by the alliance. The joint ventures will be managed by senior executives from both founding partners of the alliance and will report to a joint supervisory board. The two partners plan to proceed with their study and implementation in progressive steps following the evaluation of business opportunities.

The two companies expect considerable benefits from their alliance, especially in the following areas: combined sales progression in existing and new markets, optimization of capital expenditures through optimal use of each others' assets, cost efficiency through the use of their respective infrastructures, optimal use of resources, distribution and manufacturing strengths, purchasing synergies and optimal use of research and development as well as product development resources. Furthermore, the two partners expect a favorable development of the quantity, quality and costs of fresh milk through the development of state of the art dairy farming practices in the host countries. Both partners have a long history of association with farmers and expect to make an important contribution towards developing fresh milk production in Latin America and thus to progressively improve the total earnings of farmers.

Mr. Peter Brabeck-Letmathe, CEO of Nestlé S.A., said that Fonterra would bring to the alliance "universally recognized expertise in development of dairy farming, livestock and milk technologies and in large-scale milk procurement, processing and management as well as strong market positions in a number of countries throughout the Americas."

Mr. Craig Norgate, CEO of Fonterra, stated that Nestlé, a major customer of long-standing of New Zealand dairy ingredients, "not only had its own extensive dairy infrastructure in the Americas for over 80 years but possesses established and trusted dairy brands and product development expertise from its worldwide research and development capability."

Mr. Norgate said that the alliance would involve the part of the world that will deliver the strongest growth in demand for dairy products over the next five years and with a partner "that is widely recognized as the industry leader for branded products. Our two companies will complement each other in what is without doubt New Zealand's biggest ever commercial deal. It will be a partnership of equals which would not have been possible without the restructuring of our industry and the creation of Fonterra," Mr. Norgate concluded.