Bonlac set to approve dairy merger

By PHILIPPA STEVENSON agricultural editor

The board of Australia's Bonlac Foods is expected to recommend a merger with the Dairy Board at today's annual meeting, which could trigger significant developments within the New Zealand industry.

A spokesman for the struggling Victorian dairy company said directors met yesterday and indications were that they would approve the deal.

It then requires a Dairy Board decision, likely to be made in the next few days, to cement the alliance.

That will indicate major progress in talks between the big New Zealand manufacturing co-ops.

Commentators suggest the board's confirmation will be a sign that Kiwi Dairies and New Zealand Dairy Group have surmounted the impasse over the industry's future structure. There has been an unwillingness to make major decisions until that is settled.

It is unclear whether the proposed mega co-op will be resurrected. American academic and co-op expert Professor Bruce Anderson said this week that it was inevitable and the industry's best option.

Regardless of the decision on Bonlac, continuation of the nine-month-long silence shrouding mega co-op discussions after the board's monthly meeting on Monday will be a blow to farmers expecting developments in early December.

The Bonlac spokesman said if the Dairy Board confirmed the alliance, details would go to Bonlac shareholders in January with a vote taken in early February.

The proposal, announced in April as creating the first major transtasman dairy business, was to have been completed by August or September but was delayed over rights to Australia's biggest cheese brand, Bega.

The spokesman said today's recommendation would be subject to conditions, including an agreement with the 125 shareholders of the Bega Cheese co-op who own the brand to which Bonlac has marketing rights.

An understanding had been reached with Bega but was yet to be signed, he said.

The alliance has proved controversial this side of the Tasman because of Bonlac's poor financial performance. In September, it reported a pre-tax loss of $A51.7 million ($66.7 million).

Bonlac, a public company owned by 2500 farmer shareholders, has grown rapidly from its former role as a low-margin commodity producer to having more than half its milk moving through its branded food and beverages.

Early this year, its investment in new plant and distribution left it with $A220 million of conventional equity and $A100 million in perpetual notes supporting an asset base of $1 billion.

Constraining payments to its suppliers to help foot the bills caused an exodus of at least 400 farmers to other companies, with more wanting to go but unable to find a new home.

A company-wide restructure closed four manufacturing plants, resulting in 350 redundancies.

This month, Bonlac chairman Bill Hill said the Dairy Board alliance offered powerful long-term advantages.

The Dairy Board has defended the deal against criticism, saying that it would pay only what the company was worth.

Under April's proposal, the two companies' respective consumer businesses were to be merged into a separate joint venture owned equally. The board would merge its Australian ingredients business into Bonlac, and take a 25 per cent interest in Bonlac.

Since the proposal was announced, Kiwi Dairies and New Zealand Dairy Group have stolen a march on the Dairy Board by forming their own transtasman alliances with, respectively, Peters and Brownes in Western Australia and National Foods.