Dairy industry watches Hart

By LIAM DANN

Speculation across the Tasman says billionaire Graeme Hart is plotting a move on Australian-listed dairy company National Foods.

But while the industry nervously awaits his next play analysts say the price is too high for bargain-hunting Hart.

Writing in the Australian Financial Review, columnist Brett Clegg has suggested Hart's Rank Group - which owns New Zealand Dairy Foods and most of Burns Philp - is a likely bidder for National Foods if either Fonterra or Danone sell their minority stakes later this year.

National Foods share price has risen in recent weeks on the back of speculation that either Danone, Fonterra or both are looking to exit, Clegg said.

The announcement this week that National Foods managing director Max Ould is to step down could be the spark for a major shakeup of the Australian dairy sector, he said.

Hart - who has just completed the takeover of Goodman Fielder - was understood to be interested in expanding his empire further by selling off spice assets in North America and using the proceeds to buy the 10 per cent Danone stake before making the big move on National Foods.

Hart himself is on holiday for two weeks and unavailable for comment.

It was possible this was just rumours coming from National Foods to give the share price a boost, said one former industry insider.

Fonterra had no immediate plans to sell its 18 per cent stake in National Foods, he said.

But there was logic there for Hart to take National Foods.

"I certainly wouldn't discount it."

There was already plenty of talk within New Zealand about Hart's potential to become a serious competitor to Fonterra, said another industry insider.

Control of National Foods was hugely significant, he said. But analysts are sceptical that Hart will be prepared to pay the premium price needed to take control of the company.

A full takeover would cost more than $1.2 billion. Shares in National Foods have risen from a year low of $3.12 in March to $3.80 yesterday.

A premium of more than $4 would probably needed to take control of the company, analysts said.

The problem was that if you paid the market price you would only generate about 8 per cent return on capital, said one Australian food industry analyst.

Even if Hart had a grand strategy to boost those returns he could be stymied by competition watchdogs, the analyst said. National Foods has tried to buy New Zealand Dairy Foods and been knocked back by the Commerce Commission.

Hart was already trying to make two acquisitions work right now.

"I wouldn't think they'd be likely to take on another business of this size so quickly," he said.

The players


Rank Group owns 57.6%* of Burns Philp; 100% of NZ Dairy Foods

Burns Philp owns 100% of Goodman Fielder

Fonterra owns 18.2% of National Foods

Danone owns 10.1% of National Foods

* Ords + CPs+ 2003 Options

National Foods