Dairy merger gains momentum

By PHILIPPA STEVENSON agricultural editor

Dairy industry giants Kiwi Dairies and New Zealand Dairy Group may be able to wrap up an agreement to merge by Christmas but delivering the mega co-op package could still prove a problem.

Talks on the industry mega-merger proposal, dormant for much of the year, have gained new momentum, industry sources say.

Meetings have been held more frequently, the most recent on Friday. One source described it as a "big meeting" and said the companies' key directors and executives were "having another serious go."

Progress had come after some personalities had been ousted, and with increasing accord between the company chairmen, Dairy Group's Henry Van Der Heyden and Kiwi's Greg Gent.

Dairy Group's new chief executive, John Spencer, was also very much in favour of the plan, the source said.

Charlie Pedersen, chairman of Federated Farmers dairy section, said most members remained optimistic that industry integration could be achieved but had little to go on other than rumour and speculation.

Some farmers reported being told by Dairy Board chairman Graham Fraser that there would be a merger before Christmas, Mr Pedersen said.

Mr Fraser declined to be interviewed about the suggestion, saying through a spokesman only that "the need is to resolve the issue sooner rather than later."

Kiwi director and former Dairy Board chief executive Murray Gough said it would be possible for the companies to agree on the key issues before Christmas "but then there is still quite a process to go through."

"I wouldn't rule it [agreement] out because there have been low-key but high-level discussions going on for the past three or four months," he said.

Mr Gough said there had been increasing consensus among industry leaders that integration of the manufacturing companies with the marketing Dairy Board was the only way forward.

Mr Gough said he believed it was more likely than not that the companies would achieve a deal "but whether we can get the structure through the Government and the Commerce Commission process remains to be seen."

"The constraints the Commerce Commission put on it last time would have sowed the seeds of its downfall, and it would be pointless putting it together on that basis."

Agriculture Minister Jim Sutton had signalled some accommodation but the industry did not know "quite precisely what he means."

The commission requirement for shareholders to have fair value entry and exit from the co-op was a key issue but Kiwi hoped a proposed new share structure was the answer, Mr Gough said.

"We feel that deals with a lot of the issues in a way that keeps options open for the future."

Mr Gough said Kiwi's share structure could marry with Dairy Group's peak rights proposal "fairly easily."

Since the last merger talks collapsed in March both Kiwi and Dairy Group have invested in Australian companies. Kiwi bought West Australian company Peters and Brownes and Dairy Group bought 7 per cent of National Foods.

Mr Gough said the deals made it slightly more difficult to negotiate what the companies' fair value was because of the greater number of elements on their balance sheets. But the deals were right for the industry.

"The alternative is for the two companies to sit there and do nothing, and that's not a sensible proposition. You've got to have this balance of knowing where we want to get to, and having a management team that is motivated and getting on with things.

"Provided the opportunities ... put forward to the boards are consistent with the strategy if we did have a mega co-op, then both boards are inclined to say, 'Let's get on and do it'."