Dairy Group duo opt out of merger move

By PHILIPPA STEVENSON agricultural editor

The first casualties of the dairy mega-merger proposal have occurred among directors of New Zealand Dairy Group.

Yesterday, the company confirmed the resignations of Graham Fraser and Brian Allison.

Mr Fraser, who stood down as Dairy Board chairman last month with the announcement of Global Dairy Co - the company planned with the integration of Dairy Group, Kiwi and the board - will leave the company immediately. He was unavailable for comment.

Mr Allison, a non-farmer director, is also chairman of the domestic milk market company Dairy Foods, of which Dairy Group's half would be sold under the GlobalCo plan.

He will leave the company at the end of the month.

He said he was not a supporter of the GlobalCo concept, although he did believe integrating manufacturing and marketing was essential.

"Now the rest of the board are committing themselves to that path, I don't think it is sensible for someone with a contrary view to remain there," Mr Allison said.

The only available alternative to GlobalCo was two companies. While he understood why that was not being pursued, and regarded many of the reasons as realistic, he said other aspects had not been given the weight they should have.

He declined to elaborate.

Mr Allison h said GlobalCo developments could make it a critical time for Dairy Foods, but as Dairy Group's nominee on the subsidiary it was not realistic that he stay as chairman.

"It was difficult to take off a hat and get involved in what might be a combative position between the interests of GlobalCo and the interests of the shareholders of Dairy Foods."

The company, half owned by several thousand dairy farmers, had been on track for stock exchange listing but was now likely to be sold.

The directors would have to give their attention to achieving a satisfactory outcome for the farmer shareholders as opposed to anything GlobalCo wanted to do in its interests, Mr Allison said.

In a report to the Ministry of Agriculture and Fisheries on the GlobalCo plan, Victoria University professor Neil Quigley said Dairy Foods' potential to become a viable independent competitor would be severely limited.

Under the plan, key brands would be licensed to Dairy Foods for use only in the New Zealand, restricting the company's ability to develop a viable export business.

"Given that the GlobalCo proposal is based on the claimed efficiency of fully vertically integrated firms in the dairy industry, it is difficult to see how Dairy Foods will be able to pay competitive returns to build its own group of direct suppliers unless it can establish a viable export business," Professor Quigley said.

Former Lion Nathan executive director Mike Smith is to join Dairy Group's board. A replacement is being sought for Mr Allison as Dairy Foods chairman.