Fonterra's Chile unit may warm to Nestle proposal

Fonterra's Chilean subsidiary Soprole is exploring an alliance that could see it more closely integrated with the New Zealand dairy giant's South American joint venture.

Under the plan Soprole, 57 per cent owned by Fonterra, would form a joint venture with Switzerland's Nestle to produce and distribute the companies' brands of desserts, juices, liquid milk and yoghurt in Chile.

The deal may replace Fonterra's longstanding push to wrap Soprole into Dairy Partners of America, its South American joint venture with Nestle. This push was resisted by Soprole's other major shareholder Fundacion Isabel Aninat, a charitable foundation.

Fonterra's director on the Soprole board, Eduard Teisaire, said the new proposal was put forward by Nestle and would have to be considered by all shareholders including Fonterra.

"We have a proposal that we are studying very diligently. The indications are not negative, but we do not know how positive they are," Teisaire said. He said the plan could open the door to greater co-operation with Dairy Partners of America.

The Fundacion and the Soprole board are taking independent advice on the plan, which would see both companies contribute assets. Teisaire said it was unclear whether Nestle would make a financial contribution.

Teisaire said the Soprole board expected a recommendation from advisers next month.

The plan also needed the green light from Chilean competition regulators. The Chilean venture would have as much as 43.6 per cent of the Chilean fresh milk market and as much as 55 per cent of the yoghurt market.

A Fonterra spokesman said the decision lay in Soprole's hands.

The co-operative signed its Dairy Partners alliance in 2002. It covers branded chilled products and liquid milk, ingredient milk powders and milk management. The alliance operates as a series of joint-venture companies to process, market and distribute dairy products throughout North, Central and South America.