Watchdog eyes brewer's next move

As the new owner of National Foods, San Miguel could face a Commerce Commission road block in its bid to buy Graeme Hart's New Zealand Dairy Foods.

In 2002, the commission rejected a bid by National Foods to buy Dairy Foods on the grounds it would significantly lessen competition in the yoghurt and dairy dessert market.

Yesterday, the commission confirmed it was now closely monitoring San Miguel's efforts to buy Dairy Foods, which sells popular local brands such as Fresh 'n Fruity and Swiss Maid.

Hart put Dairy Foods up for sale last month, attracting interest from dairy companies Nestle and Danone as well as San Miguel and Coca-Cola.

He is understood to have put a price of at least $1 billion on the company.

But, as the owner of National Foods, San Miguel will now own the rights to Yoplait yoghurt in New Zealand.

In its 2002 ruling, the commission found the combination of Yoplait and the popular Dairy Foods brands would have too great an impact on competition.

When National Foods made its bid for Dairy Foods in 2002 it requested commission clearance in advance.

It is understood that San Miguel has not yet approached the commission seeking clearance or clarification about the viability of the purchase.

At the time the last application was rejected, Fonterra was a 20 per cent stake holder in National Foods.

After Monday's decision by Fonterra to sell out, that association no longer exists.

But that was not the primary reason the commission rejected National Foods' application in 2002.

In its ruling, it noted the association as a factor "in addition to its competition concerns".

Little has else has changed in the dairy market in the past three years to suggest that those concerns no longer exist.

Ironically, it was the commission's decision in 2002 that opened the door for Hart to buy Dairy Foods as the sole bidder.

Even if San Miguel is planning to buy Dairy Foods it is unlikely to do so before it has settled its takeover of National Foods.

The offer for National Foods does not close until April 29. Buying Dairy Foods any earlier than that could jeopardise San Miguel's right to Yoplait distribution rights.

French multinational Yoplait Sodima has a clause in its agreement with National Foods which allows it to review its distribution deal in Australasia if there is a change of ownership where the new owner is a competitor of Yoplait.

That clause became a problem for Fonterra which was forced to negotiate a costly joint venture deal with Yoplait Sodima.

If San Miguel buys Dairy Foods before it has National Foods in the bag, it could then be considered an international competitor and Yoplait could extract a similar costly agreement.

Or it could even revive of the idea of a joint venture with Fonterra.

But it is understood that San Miguel's main focus is the smooth completion of the National Foods deal.

It does not want to do anything in New Zealand which would upset the acquisition of the bigger prize.