NZ dairy firm in $1 billion sale talks

Graeme Hart's New Zealand Dairy Foods could be sold for more than $1 billion.

If it happens, it would mean Hart - already New Zealand's richest man - walks away with a $700 million profit three years after buying the business from Fonterra.
Filipino brewer San Miguel, which is battling Fonterra for control of Australian company National Foods, yesterday confirmed it was looking at buying the business that owns popular dairy brands such as Anchor milk and Fresh'n Fruity yoghurt.

At least three other multinational food companies are understood to be taking a look at Dairy Foods, including Danone, Nestle and Fonterra.

It is unlikely that Fonterra will emerge as a serious bidder as it would face difficulties with the Commerce Commission over its dominance of the dairy market.

In a brief statement to the Philippine Stock Exchange, San Miguel ended months of market speculation about Hart's intentions.

It said it was "studying a bid" but that it was still at a preliminary stage.

Analysts believe that Hart will look to do a deal worth more than $1 billion - including an upfront payment of $700 million and the assumption of $350 million in Dairy Food's debt.

He paid about $300 million for Dairy Foods (including debt) in 2002.

At the time, the newly created Fonterra was under pressure from the commission to execute a swift exit because of its monopoly in the local milk market.

In its last full year, Dairy Foods profits were up 28 per cent to $46.6 million on revenue of more than $500 million. Brokers following the National Foods battle said a San Miguel buyout of Dairy Foods would increase the pressure on Fonterra.

Fonterra has offered $6.20 for full control of National Foods, trumping a San Miguel bid of $5.90.

The strategic benefits and cost savings Fonterra could extract from merging its transtasman operations with National Foods have so far given it an edge over San Miguel.

But, if San Miguel owned the New Zealand business, it would also be able to merge operations and extract cost benefits. This could allow it more room to raise its bid.

San Miguel has to make its next move in the National Foods battle by April 8.

Other analysts have downplayed the threat to Fonterra suggesting San Miguel's interest in Dairy Foods represents a Plan B - which would give it a foothold in the Australasian dairy sector if it fails to get National Foods.

Either way, it is a strong indication the Asian brewer is committed to playing a role in the consolidation of the Australasian dairy sector.

Following the San Miguel lead yesterday, Dairy Foods released a short statement to the NZX confirming the start of a sale process.

It said it was "in discussions with certain parties regarding a possible sale of all or part of its business".

But there could be "no certainty as to the outcome of these discussions".

Hart has declined to comment.

Dairy Foods

Consumer dairy products company with annual revenue of more than $500 million.

Fully owned by Graeme Hart's Rank Group since April 2002.

Estimated worth: $700 million.

Potential buyers include San Miguel, Nestle, Danone and Fonterra.

Brands include Anchor, Fernleaf and Fresh'n Fruity.