Kiwi pips Dairy in curtain-raiser deal

By Philippa Stevenson

Kiwi Dairies has moved to strengthen its hand in the high stakes merger talks with New Zealand Dairy Group by adding the Northland company to its cards.

Yesterday, the Kiwi and Northland boards announced they had agreed to a union just hours before Kiwi sat down to parlay merger terms with Dairy Group.

After the meeting, Dairy Group chairman Henry Van Der Heyden responded by calling for a "focus on the main game, not the curtain-raiser."

The move by the smaller Kiwi company, with 27 per cent of the industry, will raise its ownership to 36 per cent against the big Dairy Group's 58 per cent.

It is Kiwi's answer to Dairy Group's stealing the high ground earlier in the week when it said it would effectively table the first merger offer at yesterday's meeting.

In the face of growing farmer frustration at the slowness of the big two to merge - an agreement which is key to forming the proposed mega co-op - neither company wants to be seen as the obstacle to progress.

Kiwi claimed the Northland deal "provides extra strength and momentum for negotiation for the development of the mega co-op" while Dairy Group said yesterday's offer was its way to move things along.

"Our request is in line with the agreement established at the outset which was that NZ Dairy and Kiwi would pursue a merger, and then Northland and other co-ops would follow," Mr Van Der Heyden said.

Kiwi chief executive Craig Norgate said the Northland merger was consistent with the goal of the mega co-op and "the most significant step that could be made without having to gain Commerce Commission approval."

Just last year, Dairy Group underwent due diligence with Northland which has also been involved in the merger talks between the bigger two, making it likely that a three-way combination would have been easily achieved.

However, Mr Norgate said his company's deal would "take time out of the process" which would have to start all over again with Northland if Kiwi and Dairy Group merged first.

He described the meeting with Dairy Group as "a good start. After seven months we are finally talking about the real issues."

Mr Van Der Heyden said Dairy Group would press ahead with its efforts to reach a merger agreement with Kiwi "although it would be reviewing the valuation implications of a Kiwi-Northland deal."

Despite the fallout both companies said they were optimistic merger terms could be put to shareholders before Christmas - the time the mega co-op establishment board plans to make its second application to the Commerce Commission.

Kiwi chairman John Young said the Kiwi/Northland merger, to be backdated to June 1 this year, could be one of the shortest lived in industry history if the mega co-op formed.

If it is approved by both companies' shareholders at meetings next month it would have a forecast turnover of $2.5 billion in 2000, total assets of $2 billion and an equity ratio of 48 per cent.

To even the difference between the two companies, Kiwi shareholders would get a tax-free bonus share issue equal to $112.5 million. To put cash in farmers' pockets - about $12,000 for the average farm - the company would buy back some of the shares.

Kiwi has guaranteed all farmers a minimum payment of 35c a kilogram of milksolids above the Dairy Board base price, which would be welcomed by Northland suppliers whose payout has been lower.