Alliance ambitions spread overseas

By Philippa Stevenson

Agricultural editor

Dairy companies finding the formation of alliances within New Zealand difficult to cement can at least agree on one thing - transtasman ventures are inevitable.

Australian companies are just as enthusiastic for the Anzac business.

On Friday, the Kiwi and Northland co-ops signalled that the three-way merger between them and Dairy Group - key to forming a pan-industry mega co-op - was in trouble by announcing plans for a two-way alliance.

Kiwi chairman John Young said bringing the industry down to two major players with the Northland-Kiwi merger would "ease the way for the final merger with Dairy Group once the Commerce Commission approval is gained next year."

Dairy Group chairman Doug Leeder disagreed, saying discussions between his company and Kiwi should take priority.

Despite the local tensions, however, Dairy Group and Kiwi executives last week confirmed that relations with Australian dairy companies were friendly, and ongoing.

Dairy Group chief Graeme Milne said the company was conscious that its retailer customers were rapidly becoming transtasman operations.

"We wouldn't be doing our job if we weren't looking at all the options," he said.

As well, Kiwi chief executive Craig Norgate said regardless of the state of talks here "we're still talking to the Australians because it is in New Zealand's interest to do that."

The discussions did not threaten the mega co-op plan but were entirely consistent with its objectives, he said.

Showing the same enthusiasm for transtasman alliances, the chairman of Australia's biggest dairy co-operative, Ian Langdon of Dairy Farmers, has been eager to set the record straight about a takeover bid of his company mounted by Italian dairy giant Parmalat.

Mr Langdon said he was concerned that his company might be regarded as genuinely interested in the Parmalat deal.

"I'm just trying to keep an appreciation among New Zealand dairy farmers that we are a farmer-owned co-operative here, we are determined to stay that way, and we are not dealing with the Italians."

Because of probable synergies with Dairy Farmers' operation, New Zealand's domestic business was the primary attraction for his company.

A transtasman mega-merger was not immediately suggested, though the idea was neither impossible nor wrong, he said.

The Australian dairy industry is to be totally deregulated from July 2000, and Dairy Farmers is in the middle of a capital restructuring which has elements similar to the New Zealand industry's mega co-op plan.

The Australian company's proposal is to set up a supply co-operative, and a farmer-controlled trading company which long term would be publicly listed and have external investment.

The Parmalat offer forced it to delay the restructuring vote by two weeks, and it will now take place on Thursday.

Dairy Farmers' board said the timing of the Parmalat proposition appeared designed to disrupt the restructuring process "to stop Dairy Farmers becoming an even stronger competitor."

Parmalat, which in 1998 had sales of more than $10 billion, operates in 28 countries, has staff of 40,000, is a leader in the UHT milk market and has more than 500 other products from coffee to pasta.

A director of Parmalat Australia, Ray Hill, who is also general manager of its Australian subsidiary, Pauls Ltd, said the Italian colossus was also likely to be interested in the New Zealand domestic milk market. A local market company such as New Zealand Dairy Foods would be attractive.

"One thing you can say about Parmalat, it is always interested in acquisitions," he said.

Other major Australian companies interested in, and of interest to, New Zealand include Victorian co-op Murray Goulburn, public company Bonlac Foods of Victoria and Tasmania, and Melbourne headquartered National Foods.

A spokesman for National Foods, Ian Greenshields, said his company had certainly been looking at opportunities in New Zealand.

"There are opportunities existing [in the domestic market] and potential opportunities if deregulation proceeds," he said.

New Zealand was attractive because it was a market similar to Australia with very similar economics, and low supply costs.