KEY POINTS:
New Zealand dairy giant Fonterra has yet to enter any indicative offer for the Sydney-based Dairy Farmers cooperative.
The Australian Financial Review reported the NSW cooperative was set to draw up a shortlist of potential buyers, despite Fonterra and another key player with New Zealand links - consumer foods group Goodman Fielder - not having signed confidentiality agreements which would give them access to sale documents.
Dairy Farmers chief executive Rob Gordon told shareholders: "To ensure Dairy Farmers shareholders receive the full strategic value for the asset they collectively own, as well as security for their milk supply, the board will use this formal process, including necessary confidentiality requirements, in a rigorous and fair manner with all interested parties."
There has been widespread speculation in Australia that Fonterra will bid for Dairy Farmers, but the NZ dairy giant has been close-mouthed, saying only that it will look at any "consolidation opportunities".
The main players in the Australian dairy sector are Murray Goulburn (3.4 billion litres of milk intake), Fonterra (2.1b litres), Dairy Farmers (1.1b litres), National Foods and the Warrnambool cooperative, each with 0.8b litres, and Parmalat (0.5b litres).
Dairy Farmers, Australia's biggest dairy cooperative, has a turnover of A$1.2 billion ($1.38) billion and is strongly represented in three key market segments - cheese, fresh dairy products such as yoghurts, and liquid milks - in the Brisbane and Sydney markets.
According to independent Australian analyst Steve Spencer, the Sydney-based cooperative's weaknesses include a limited share in markets outside Queensland and New South Wales, high supply chain costs because its milk supply is not close to its factories, and it is set to lose its profitable yoghurt line when Nestle re-claims the Ski brand.
In comparison, Fonterra Australia - which also runs the branded consumer goods in New Zealand supermarket chillers - is weak in liquid milks and fresh dairy, and strong in cheese, spreads and milkpowders. It can import a lot of these products from NZ, but shelf-life requirements set by supermarkets mean it needs to source milks and yoghurts in Australia,
John Doumani, managing director of Fonterra Australia, has previously told NZPA that growing its own business or acquiring small regional companies could take Fonterra decades to grow a critical mass in Australia's supermarket chillers.
Instead Fonterra was waiting for fresh milk assets to become available following further rationalisation in the Australian industry.
"There could be an opportunity to extract considerable value out of consolidation ... whether it's Dairy Farmers or any of the other players."
- NZPA
