Dairy industry set for mega merger

By Philippa Stevenson

agricultural editor

The dairy industry's two major players have agreed to investigate a merger which could put 85 per cent of the country's milk in one can within 11 days.

After a week of exploratory talks, NZ Dairy Group and Kiwi Dairies are now undertaking due diligence for a merger that is expected to be the cornerstone of a mega co-op, integrating most manufacturing companies with their exporter, the Dairy Board.

On Wednesday, Dairy Group chairman Doug Leeder advised his company's supplier representatives that the companies had reached agreement on a process which could be applied to all participating companies "to effect the formation of a mega co-op."

Yesterday, in a joint statement, Mr Leeder and Kiwi chairman John Young said formal merger talks between their companies was a significant step. They expected other companies would become involved.

"While there is still a lot of work to be done, the concept of a mega co-op has received strong support from farmers, with a large turn-out at the combined company/Dairy Board meetings." Farmers wanted more detail but "they also want to see progress towards a structure that will improve their returns," the chairmen said.

Kiwi chief executive Craig Norgate, who has urged a fast-track merger so that the mega co-op is operating by the beginning of the new dairy season, said the companies were "still looking at an effective date of June 1 this year. It will be a backdated-type process. We won't get final approvals through until August or September," he said.

Mr Norgate said speed was necessary to lessen the impact on staff, market price and customers. Due diligence would take up to a month, followed by detailed discussion on merger terms.

It will require Commerce Commission authorisation and the integrated industry structure could not proceed without legislative changes.

Both were expected to be forthcoming from a supportive Government, Mr Norgate said.

While the board has proposed a mega co-op be set up from June 2000, yesterday spokesman Neville Martin said the board was confident that the required legislation could be passed before this year's election.

Dairy Farmers of NZ's Mark Masters said there seemed to be acceptance the two companies would get together. "That forms the template for the other companies to follow if they want to."