Dairy mega-merger

By Philippa Stevenson

The ardently wooed South Island Dairy Co-op has accepted the merger proposal of New Zealand Dairy Group, rejecting the fellow North Island suitor, Kiwi Co-op.

The merger, yet to run the gauntlet of the combined companies' 7700 shareholders, will create New Zealand's largest dairy company, processing and selling 58 per cent of the country's milk supply.

Yesterday, it was hailed by Sidco and Dairy Group as a significant step towards their long-term goal of a mega-dairy company.

A disappointed Kiwi said its rejection would cost farmers up to $15 million in lost synergies.

But Dairy Group chairman Doug Leeder said the benefits from greater unity were substantial.

The merger was a speedier way to achieve the savings identified in the industry's Business Development Project, which were upwards of $200 million a year, he said.

Sidco chairman John Roadley said: "For New Zealand to be successful selling its dairy products on the world market, we need to have a large dairy company with all the benefits that critical mass brings."

Kiwi, which had sought sanctions from the Commerce Commission for its bid, because it already has a South Island holding, warned that the commission would also need to authorise the merger.

Dairy Group believed it did not require commission clearance, Mr Leeder said.

Neither would the merger trigger deregulation of the industry.

"But clearly there's a view that if producer boards are reviewed, a greater unity within New Zealand will be the position we need to adopt," he said.

It has been suggested that 28 per cent industry owner Kiwi, which proposed a merger with Sidco not to be underweight beside Dairy Group, has held serious talks with Australian co-operatives on some form of transtasman alliance.

Dairy Farmers of NZ chairman Mark Masters said Kiwi would have to consider whether it wanted to become part of a mega co-op, or pursue other options. "And they will be doing their sums to see how long they can maintain a power of veto on the [Dairy] board."

Mr Leeder said he would give an assurance to Kiwi "to work to every degree I can to ensure that the New Zealand dairy industry stays unified and doesn't fragment, just because of this chain of events."

Mr Masters said the merger process had disconcerted farmers, but if it proceeded, they might find it "one way of driving gridlocking politics out of the industry and enabling it to concentrate more on delivering real payout."

Pictured: New Zealand Dairy Group and Kiwi Co-op locked horns over the future of the South Island Dairy Co-op.