San Miguel rumours mount over NZ dairy acquisition

Asian drinks conglomerate San Miguel (SMC), currently embroiled in a bidding war with New Zealand dairy co-operative Fonterra for Australia's National Foods, is being lined-up as a potential buyer for New Zealand Dairy Foods, Tom Armitage reports.

According to unconfirmed reports in the Australasian press, New Zealand Dairy Foods' chairman, Graeme Hart, is sounding out potential buyers for the AUS$700 million firm, as the Australian dairy sector prepares itself for an imminent shake-up.

The group, which owns consumer brands Anchor, Fresh'n'fruity and Fernleaf, also processes 50 per cent of New Zealand's milk and has respective 25 per cent shares in the Australian cheese and yoghurt markets (yoghurt being the most rapidly expanding dairy category in Australia's stagnant dairy sector).

Analysts have suggested that entrepreneur Hart is considering the sell-off because of the current buoyed prices for Australian dairy assets, stemming largely from the National Foods takeover.

Hart believes that SMC would be ideally placed as a potential buyer, depending on the outcome of its bid to takeover National Foods.

If Fonterra succeeds, for instance, SMC could still enter the Australian dairy sector through the acquisition of several smaller dairy players - including the debt-ridden New South Wales co-operative Dairy Farmers, which owns the Ski yoghurt brand, and Parmalat's Australian subsidiary.

If the rumours are substantiated and Hart receives the AUS$700 million asking price, he stands to make an estimated AUS$400 million profit on the deal, as he acquired New Zealand Dairy Foods for a knock-down price back in June 2002 to prevent Fonterra from establishing a monopoly across the New Zealand dairy sector.

Auckland-based Fonterra reaffirmed its position as the front-runner in the National Foods bidding war by announcing a revised bid earlier this month.

It lifted its previous offer of AUS$5.45 per cent to AUS$6.00 per share (10 cents higher than SMC's) - providing the dairy co-operative acquires more than 50 per cent of National Foods' shares. Furthermore, as an incentive to shareholders, Fonterra added that it would increase this offer to AUS$6.20 if it acquired more than 90 per cent of National Foods' shares.

Meanwhile, SMC instigated a spat between the two rival bidders last week, alleging that Fonterra failed to give "adequate disclosure" that it would form an alliance with Yoplait (owned by French dairy company Sodiaal and distributed in Australia by Sodima, a separate Yoplait entity) if its bid to buy National Foods was successful.

"San Miguel's application alleges that unacceptable circumstances exist because there has been inadequate disclosure concerning a possible joint venture between National Foods, Sodima and Yoplait if Fonterra Cooperative Group Ltd acquires all of the shares in National Foods," the Australian Takeover Panel said in a statement last week.

San Miguel claims that discussions over a possible joint venture had effectively made Yoplait and Sodima Fonterra's associates - something which had to be declared prior to the bid announcement in accordance with Australian competition regulations.

"Yoplait and Sodima should have lodged substantial holding notices annexing a copy of, or setting out details of, each agreement or arrangement between Fonterra, Sodima and Yoplait in relation to the possible joint venture," San Miguel said in a statement addressed to the takeover panel.

Such legal wrangles are common occurrences prior to the outcome of fiercely contested acquisitions, as both parties seek to gain leverage over one another.

National Foods' shareholders have until 29 March to decide whether to accept Fonterra's bid, while SMC has until 11 March to table a revised offer - a possibility that has not yet been written off.