Dairy mega-merger mulled by big five

By Philippa Stevenson

A single company encompassing almost the entire dairy industry could soon be a reality, with five major companies expected to have merger talks soon.

Yesterday, the Business Herald was told a new consensus to discuss bringing the five big companies together quickly, rather than in a series of one-to-one mergers, was an open secret in the industry.

It comes on the eve of farmer meetings to decide on a merger between Hamilton-based New Zealand Dairy Group, and the South Island Dairy Co-op (Sidco) to create a company with 58 per cent of milk supply.

The mega-merger would bring together Kiwi Dairies, Northland, Westland, as well as Dairy Group and Sidco, comprising 97 per cent of supply. An invitation to join would be extended to the minor companies, Tatua, Tasman and Kaikoura.

However, one hurdle could be the attitude of Dairy Group board, which is said to be evenly split over whether one or two big cooperatives are best for the industry. While farmers spoken to by the Business Herald confirmed that several company directors had told them of the imminent discussions, most company chairmen maintained a public silence.

Dairy Group chairman Doug Leeder said it was taking licence to suggest a five-way merger was being discussed.

"We are having no formal discussions about putting five companies into one," he said. Kiwi chairman John Young and Northland chairman Greg Gent also declined to comment.

But Sidco chairman John Roadley, a long-time proponent of a mega co-op, said the companies were responding to a call from farmers to "put it all together."

"Now there is a greater realisation emerging that the mega co-op isn't a fairyland concept, maybe it's got some merit, and maybe we should be putting some effort into getting it together quite quickly."

Mr Roadley added that it had "increasingly become obvious to a lot of people that that [a mega co-op] is going to be the most likely outcome."

Mr Roadley said the Dairy Board would retain its marketing role but studies showed that benefits came from integrating the companies. He said the votes by Dairy Group shareholders tomorrow, and Sidco suppliers on Thursday, were "all part of the game plan."

Some farmers may have wanted the mega-merger to form in one hit but there were many differences in company performance and farmer contribution that had catered for.

"I think people are looking for leadership and if we have a positive vote [on a Dairy Group/Sidco merger] and on Friday start negotiation with Kiwi, I don't think you'd hear the milking machines for the applause down on the farm."

Dairy Farmers of New Zealand chairman Mark Masters said the advantages of a mega co-op were that it gave the industry critical mass for marketing, better finance-raising ability, and removed political schisms.

However, there were questions on how the performance of the mega co-op could be measured.

Waikato dairy section chairman Kevin Wooding said he was very pleased a mega-merger was being talked about but he hoped talks would not pre-empt the industry's newly formed strategy.