August 29, 2008

Fonterra Left Out of Dairy Sale

By JANES, Andrew

FONTERRA will face a powerful new competitor across the Tasman with National Foods set to buy Australian co-op Dairy Farmers for $1.1 billion.

After a competitive sales process, Dairy Farmers announced yesterday that it would recommend the bid by Kirin-owned National Foods to its farmer shareholders. It will require the approval of at least 75 per cent of its shareholders in a vote scheduled for mid- November.

Fonterra pulled out of the race to buy Dairy Farmers in June after buying Nestle's Australian yoghurt and dairy dessert business. BusinessDay understands Fonterra and Dairy Farmers had been in exclusive talks with the aim of combining the two co-operatives but talks broke down last year with Dairy Farmers deciding to run a competitive sales process instead.

National Foods has given assurances to the Australian Competition and Consumer Commission that it will divest milk-processing plants in New South Wales and South Australia and license some fresh and flavoured milk brands if it acquires Dairy Farmers.

When Fonterra pulled out of the Dairy Farmers sales process Dairy Farmers granted it permission to work with National Foods to settle terms to work together to enhance a National Foods-led bid.

Observers thought this meant Fonterra would be the frontrunner to pick up the assets National Foods would need to divest, but yesterday a well-placed source said Fonterra would now be unlikely to acquire those assets.

Fonterra declined to comment but a spokesman said: "The recent acquisition of Nestle's yoghurts and dairy desserts business . . . represented a significant step towards achieving our growth strategy in Australia."

Fonterra lost out to San Miguel of the Philippines in a bid for National Foods in 2005. San Miguel sold National Foods to Kirin in 2007.


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