Auckland-based Fonterra said that making a revised bid for National Foods "would not be in the best interest of its shareholders", only days after San Miguel delivered a self-styled "knock-out" bid of AUS$1.9 billion, topping Fonterra's previous conditional offer of AUS$6.20 per share.
The co-operative also confirmed that it was prepared to accept San Miguel's revised offer (which equates to around AUS$6.40 cash per share) for its existing 19 per cent stake in National Foods - providing that this remained unconditional.
"We have consistently said that we would only pursue the deal at a price that represented good value for our shareholders," commented Andrew Ferrier, Fonterra's chief executive.
"We have disciplined investment parameters and believe our offer represented full and fair value for National Foods. It would not have been prudent to go any higher," he added.
Fonterra first acquired its minority stake in National Foods in October 2000, after purchasing 56.6 million shares for an average price of AUS$2.68.
Fonterra noted that this investment had achieved its members a dividend payment of around AUS$45.5 million - representing an annual compound return of 30 per cent throughout this period.
Ferrier said that San Miguel's offer would crystallize a significant profit for Fonterra's members - around AUS$200 million - and added that this would subsequently allow Fonterra to pursue other growth opportunities within the Australian dairy sector.
Despite the San Miguel setback, Fonterra will still process around 16 per cent of Australia's raw milk and last year sales of its leading brands Mainland and Bega cheeses, together with its Conoisseur and Cadbury ice cream brands, totalled AUS$1.4 billion.
"Although we had sought a controlling interest in National Foods as part of our wider development strategy for the Australasian market, we have other opportunities for organic growth and potential acquisitions in both our ingredients and brands businesses," he added.
Conversely, completing the successful acquisition of National Foods will give San Miguel an immediate footing into the Australian dairy market - the Melbourne-based company already processes 37 per cent of Australia's fresh milk, as well as controlling a third of the yoghurt and dairy-based dessert market.
Last year San Miguel outlined its intention to expand operations in the region, in a bid to become one of Asia's ten biggest food and beverage manufacturers and also triple sales by 2007.
In a statement to the Philippine Stock Exchange, San Miguel said: "The company welcomes Fonterra's decision. It is looking forward to completing its acquisition of National Foods."