Dairy Foods exploring transtasman merger

By PHILIPPA STEVENSON

New Zealand Dairy Foods is to boldly take dairy farmers where they have never gone before - into a merger with an Australian company and on to the Stock Exchange.

The domestic milk market giant, half owned by 6200 North Island farmers and half by New Zealand Dairy Group, expects to sew up a transtasman deal and list on the New Zealand sharemarket within seven months.

Yesterday, chairman Brian Allison said the company had provided information memorandums to three Australian companies, including listed National Foods and farmer cooperative Dairy Farmers of Australia.

Chief executive Peter McClure said he expected the Australians to indicate their interest before Christmas, with due diligence to begin early in the New Year for terms to be finalised by March.

Mr Allison said plans, including sharemarket listing by mid-year, would continue regardless of whether Dairy Group and other manufacturing companies formed a mega co-op with the Dairy Board.

Under the industry's integration plan, Dairy Group would divest Dairy Foods to satisfy the Commerce Commission's requirement for competition in the local market. In that case, the company would look principally to Australia for another cornerstone investor, he said.

Without a mega co-op, Dairy Group would be keen to have local market presence and continue Dairy Foods plans to expand into Australasia.

Mr Allison said he was aware its domestic competitor, Kiwi Dairies-owned Mainland, was also talking to Australian companies.

"I have no idea how far they have advanced their talks, or even whether they are in a position to be serious about it. It depends also on the other party, as to which one of us they see as fitting in with their strategy," he said.

"Realistically one would say if they are dealing with Kiwi Mainland they are seeing that as dealing with MergeCo. If they deal with us they are likely to be dealing with an independent company. They must weigh that up."

Dairy Foods, which yesterday held its first meeting with shareholders since becoming a standalone company in June, told about 600 farmers in Hamilton that it had secured rights to the iconic Anchor and Fernleaf brands in the local market for 20 years.

Dairy Foods' revenue in 1998-99 was $384.5 million, down $13.7 million on 1997-98. Earnings before interest and tax were $42.1 million, up from $41.9 million. Total assets were $122.7 million, down from $127.1 million.

Earnings per share were 24.3c, calculated on 140 million shares expressed in cents-a-share pre-rebate.

As part of the restructuring deal, Dairy Foods will pay 100 per cent of its tax-paid profit to shareholders this financial year, adding to financial pressures Mr Allison said he would rather not have.

The company's tax bill is set to double to around $13 million this year now that it has moved out of the cooperative system.