Regulator gives Fonterra the nod

Fonterra has cleared the last regulatory hurdle in its attempt to take over Australian dairy company National Foods.

The Australian competition regulator said yesterday that it would not oppose the dairy co-operative's bid.

However, the Australian Competition and Consumer Commission (ACCC) said it would require the merged entity to divest certain assets in the West Australian milk market.

That decision is in line with Fonterra's expectations. It anticipated a sell-off might be required when making its bid last October. It indicated to the ACCC at the time that it was prepared to sell those assets.

The ACCC highlighted competition concerns in the market for raw milk, fresh milk and flavoured milk in the state.

"In particular, the ACCC was concerned that the merged entity would use its market power in the raw milk market to substantially lessen competition in the acquisition of raw milk as well as substantially lessening competition further downstream," chairman Graeme Samuel said.

"The undertaking Fonterra had made was aimed at ensuring competition in the raw milk, fresh milk and flavoured milk markets in Western Australia as well as those markets that rely on the supply of raw milk in the near future and in the longer term.

"Following the offer of court-enforceable undertakings by the parties, the ACCC is satisfied that its concerns will be addressed."

Fonterra has offered A$5.45 a share for National Foods.

But the National Foods board rejected that bid, saying it grossly undervalued the company, placing its own value on the group of between A$6.11 to A$6.65 a share.

Fonterra received approval for the bid from Australia's Foreign Investment Review Board and from the New Zealand Commerce Commission in December.

The biggest barrier Fonterra now faces is the rival bid of A$6 a share by Filipino brewing giant San Miguel.

Analysts are picking Fonterra - which already holds a 20 per cent stake in National Foods - to win the battle but that may depend on how much it is forced to pay.

Its farmer shareholders have made it clear the acquisition must not put a dent in their annual payouts and must be profitable in the short to medium term.

Fonterra chief executive Andrew Ferrier welcomed the decision, saying it was "an important milestone in our bid for National Foods".

He said the ACCC's requirement that the merged entity divest the West Australian assets was "consistent with Fonterra's expectations", as foreshadowed in its takeover offer.

Fonterra was pleased with the "constructive approach" taken by the ACCC.

Fonterra's offer

* A$5.45 a share for full control.

* The offer closes February 1.

* Rival bidder San Miguel has offered A$6.