Hart leaps into the NZ dairy business

Graeme Hart buys Fonterra's half of Dairy Foods. PHILIPPA STEVENSON reports.

New Zealand's richest man, entrepreneur Graeme Hart, is to buy Fonterra's half share of major domestic milk marketer Dairy Foods for $119 million.

Hart's Rank Group, major shareholder in global yeast and food ingredients manufacturer Burns Philp, will extend the $1.70 a share offer to the company's other shareholders, about 6200 North Island dairy farmers.

Many of the farmers, who got their stake in a merger deal by their former company, New Zealand Dairy Group, in 1999, formed the Great Milk Company, which also bid for Fonterra's shares.

Mega co-op Fonterra was required by legislation enabling its formation to sell its 70 million share-holding in the $420 million Dairy Foods by October to ensure competition in the New Zealand dairy products market. Fonterra has retained ownership of the other major domestic company, Mainland.

Hart, 46, bought a 20 per cent stake in Burns Philp in 1997, just before the one-time Australian icon plunged in the second-worst crash in the country's corporate history.

He has since restructured the firm and built his stake to around 54 per cent.

Last year the company, with operations in more than 25 countries, had sales of $784 million and profit of $67.8 million.

Hart told the Business Herald yesterday that Dairy Foods was a good fit with Rank's other food industry interests, principally Burns Philp.

"We're quite familiar with the food sector in terms of processing, distribution, marketing, and dealing with supermarkets, and ingredients and so on," he said.

"We are invested in food, we are very comfortable in food, and that's why we have purchased into New Zealand Dairy Foods."

Hart said there were no threshold conditions on his offer, which went to Dairy Foods yesterday and would go to the remaining shareholders in the next few weeks.

It was up to the farmers whether to accept.

Rank, which had faced formidable competition for Dairy Foods, had no interest in listing it on the Stock Exchange, nor in immediate changes to the company's management.

Dairy Foods chairman John Storey said last year that the company needed to become a $2 billion enterprise to remain competitive, but Hart would not comment on his plans for the business.

Storey said following Fonterra's acceptance of Rank's offer, the only question that remained was the level of ownership the takeover achieved.

The Dairy Foods board expected to get an appraisal of the offer by merchant bankers Cameron & Co in the middle of the month and would send it to shareholders, along with the board's recommendation, by the end of the month, he said.

"While the resolution of Dairy Food's future ownership has been concluded within a shorter time frame and with less involvement by farmer shareholders than anticipated, the certainty provided by confirmed ownership will be beneficial in allowing the company's management to return to the task of growing and developing the business."

Storey had a lot of respect for Hart and Rank's business success, and had developed a high regard for them during the sale process.

Hart brought a fresh view to the dairy industry "but more importantly he already is involved with a global food company".

Great Milk Company chairman George Moss was disappointed the farmer-backed company had missed out with a bid that matched Rank's in share price. He believed the sale process had been short-circuited, resulting in Dairy Foods' value not being fully realised to the cost of all Fonterra shareholders.

"If we had been beaten by a better price, under the process we had been led to believe they wanted to go down, then I would be less disappointed."

Moss said farmer shareholders should still combine into a voting block or holding company "and take a long-term view".

But farmers still had to get the board recommendation and learn of Rank's plans.

Fonterra chief financial officer Graham Stuart said Rank's offer gave Fonterra shareholders the best value.

The Great Milk Company offer included conditions on the terms and price of milk Fonterra supplied to Dairy Foods which would have raised Fonterra's costs, he said. Rank's offer was "clean" by comparison.

Stuart said Fonterra concluded the deal with Rank before the independent appraisal was available to the Dairy Foods board because the company was happy with its assessment of the value of the transaction.

"As an informed seller we are quite able to do that. We have the competency to do that [and] so could appraise the bids and come to our own conclusions.

"And we're confident we've got that right."

The Cameron & Co report was likely to be more directed to the interests of farmer shareholders, who had a choice whether to sell. Fonterra did not, Stuart said.

The sale was managed by ABN Amro and overseen by a committee of Dairy Foods former chairman now adviser Brian Allison, Storey and company chief executive Peter McClure, Fonterra director Henry van der Heyden, Stuart and Fonterra Enterprises managing director Alexander Toldte.