Hold-ups thwart Dairy Foods plans

By PHILIPPA STEVENSON

The stalled dairy industry mega co-op proposal is frustrating vital growth plans of domestic market giant New Zealand Dairy Foods even as a potential Australian partner raises its interest.

Dairy Foods, half-owned by New Zealand Dairy Group and half by farmer investors, last year gave information memorandums to several Australian companies, including publicly listed National Foods.

Now National Foods, which has a $A400 million ($516 million) war chest, has appointed ABN Amro as its corporate adviser in New Zealand as it seeks to make a substantial acquisition.

But the chief executive of Dairy Foods, Peter McClure, said yesterday that the growing uncertainty surrounding the mega co-op was slowing things down for his company.

The proposed merger between two other major Australian companies, Bonlac and Dairy Farmers, also potential transtasman partners, added further uncertainty, as did the continued bid by Italian dairy giant Parmalat for Dairy Farmers.

"It's a bit frustrating that we can't progress with our Australasian strategy in the immediate term [but] nothing has really changed from that perspective longer term. It's just a matter of how we do it," Mr McClure said.

If the mega co-op goes ahead, the industry has nominated Dairy Foods as the retail supply company to be sold off to satisfy the Commerce Commission requirement for competition in the local milk market. The other major player is Kiwi Dairies' Mainland.

Last year, the company said it planned to list on the stock exchange by mid-year. Regardless of who owned it, it would be looking for an Australian partner to increase its presence in the Australasian market.

Mr McClure said the company could not be isolationist in the face of market rationalisation and globalisation. Nor could it continue to be a "payout cash cow" for Dairy Group.

"Our business focus tended to be short term because we were expected to boost payout, rather than boosting our future capacity to grow the business," he told a shareholder meeting.

"That's seen us take actions which are a little risky for a fast-moving consumer foods company. To achieve payout contribution targets, we've had to cut marketing budgets. That undermines the long-term value of our brands."

Mr McClure said yesterday that he was "keen to get on and do something" but was focusing day to day on doing the right thing for the business.

"There are a number of projects we have pushed ahead regardless, because if you tend to shelve them pending an ownership change something like this [delay] happens and you wished you had started a long time ago."