Friesland Foods and Campina reach agreement on proposed merger

10 April 2008

The Boards of Management, Cooperative Boards and Supervisory Boards of Friesland Foods and Campina have reached agreement on the proposal for the merger agreement that will create the new dairy company, FrieslandCampina, and the new dairy cooperative, FrieslandCampina. The new company will be better able to respond to dairy market developments and will be able to accelerate the realisation of the strategy of both companies. The proposal for the merger agreement will be discussed with the member farmers of both cooperatives over the next few weeks at regional meetings. The decision on the merger will be taken on 7 May 2008 by the member farmers during a General Meeting of member dairy farmers of Friesland Foods and a Members’ Council of Campina.

Dynamic business

FrieslandCampina will harness the natural goodness of milk to serve consumers and customers  efficiently  to achieve the best possible results in the market. The merger will create a company with strong international brand and market positions in products such as consumer milk, condensed and powdered, dairy drinks, yoghurts, desserts, cream, coffee enhancers, infant and children’s food, cheese, butter and ingredients. The size of FrieslandCampina will deliver increased strength, attractiveness, stability and continuity; the company will be able to achieve synergies which in the longer term will lead to lower costs and higher revenues and the strategy will focus on creating sustainable value for consumers, customers and staff and consequently also sustainable value for the 17,000 member dairy farms, which will translate into a trend-setting milk price in North-West Europe.

FrieslandCampina will structure its product groups and regions into four business groups: Consumer Products Western Europe, Consumer Products International, Cheese & Butter and Ingredients. Based on the combined figures for 2007, FrieslandCampina has an annual turnover of EUR 9.1 billion, bringing FrieslandCampina among the leading players in the global dairy market. Together, the 17,000 member dairy farms supply 8.3 billion kg of milk (in 2007). The new company employs 22,000 people and has more than 100 production and sales organisations around the world.

Synergy effects
Friesland Foods and Campina are two healthy dairy companies with strong international market positions. The size of the merged company, FrieslandCampina, will deliver stability and continuity. The strategy of the new company will be focused on creating sustainable value for consumers, customers and staff and consequently also for the member farmers. The company will be able to achieve synergies, which in the long term, will deliver lower costs and higher revenues.

FrieslandCampina does not expect synergy to make a positive contribution to the result in the first year owing to non-recurring costs as a result of the reorganisations and the integration of both companies. The synergy benefits are expected to be realised in stages up to 2012, when they will represent approximately EUR 175 million on an annual basis.

FrieslandCampina will be an inspiring, international workplace for dairy professionals, with attractive brands and products. Growth of the company will lead to new jobs and new opportunities for the employees, however, the merger will also have an impact on employment over the next few years. Because offices  will be merged and relocated at least 500 of the total 22,000 jobs of the merged company will be lost in phases until 1 January 2011. FrieslandCampina will do its utmost to minimise the social consequences of job losses. For the Netherlands, FrieslandCampina wants to agree a new social plan with the trade unions based on the principle to help employees find a new job inside or outside FrieslandCampina (‘from work to work’). Initially, most of the changes will involve the support services and office locations, with the emphasis on the Netherlands, and possibly Germany and Belgium. Most of the jobs affected are at the head offices and offices of groups and/or operating companies. Friesland Foods and Campina have submitted a request for advice and a request for approval to the Central Works Councils in the Netherlands and submitted a consultation request to the European Works Councils.

Sustainable value for member farmers
As a result of the merger, Friesland Foods and Campina will create a stronger base for the income of member farmers, who together are the owners of Zuivelcoöperatie (dairy cooperative) FrieslandCampina. The value that FrieslandCampina creates for members is reflected in the milk price. This milk price is based on the basis of general market trends in the dairy industry and the performance of FrieslandCampina. The result (after payment of the compensation for the capital invested by the members and after reserves) of the company accrues in full to the members via the milk price. FrieslandCampina wants to pay a milk price that sets the trend, and as such is among the best in North-West Europe, averaged over a number of years. FrieslandCampina guarantees the sale of what is expected to be a growing volume of milk supplied by the members. Zuivelcoöperatie FrieslandCampina’s ambition is to stay close to the members and will therefore have an efficient governance structure.

FrieslandCampina will operate a new system of member financing. Member farmers will participate in the financing of the company via membership certificates and via member bonds, both registered in the members’ names. After the merger, expansion of a member’s milk volume will not require additional  financial participation. Members and members ceasing their business can also own member bonds voluntarily. They receive a market-compatible payment for the capital registered in their name.

To create an equal starting point for the merger, members of Friesland Foods will receive membership certificates at the start of the merger equal to EUR 6.00 for every 105 kilograms of milk supplied in the quota year 2007/2008.This capital registered in the members’ names will be charged to FrieslandCampina’s general reserve. For members of Campina, the amount in existing membership certificates they are required to own at 1 April 2008 will be converted into membership certificates of the new company.

The Central Works Councils of both companies have been asked to issue advice. The international Works Councils have been consulted.
The general meeting of member dairy farmers of Friesland Foods and the members’ council of Campina will decide on the merger on 7 May 2008. Until then, regional and departmental meetings will be held. All members will receive detailed information on the merger proposal and will be given every opportunity to voice their opinion. After 7 May 2008, the relevant competition authorities, including the European Commission, have to give their approval. The decision by the European Commission is expected to be announced in the fourth quarter of 2008.