Fonterra's loss of National Foods to brewer San Miguel is a blow to the dairy giant and the economy.
National Foods would have boosted its portfolio of high-value branded products. They are necessary to bring predictability to Fonterra's earnings as their prices do not follow the ebbs and flows inprices of raw commodities such as milk powder.
Branded products also insulate Fonterra from the long-term slide in commodity prices.
National Foods would have made the co-operative the dominant player in its home market.
It would also have given Fonterra a suite of brands to market in Asia, where demand for luxury foods such as dairy products is growing rapidly. Such ambitions, for the moment, must be put on hold.
The failure is the third time in the last year that Fonterra has been thwarted in a major strategic move.
Fonterra lost its bid to take control of rural services group Wrightson to its former chief executive, Craig Norgate. It had hoped to merge Wrightson with its own rural services business, RD1.
In parallel with the National Foods case, Fonterra failed despite holding a cornerstone stake, which should have provided a springboard to full control.
Norgate also trumped Fonterra's second attempt at consolidating the rural services business - a bid with the South Island's Pyne Gould Guinness for Williams & Kettle.
However, it is not all bad news.
Fonterra has demonstrated resolve by drawing a line in the sand and sticking to it. Its arguments for pulling out must be applauded for their commercial logic.
Even before Fonterra withdrew, San Miguel's rival offer of A$6.40 was looking rich. Now indications are that a competing offer by Fonterra would have gobbled up cost savings that would have come from merging National Foods with its other operations.
With Fonterra generating about a fifth of New Zealand's export income, such judgments are reassuring.
Finally, and this is the silver lining, the co-operative now has an extra A$250 million to achieve its goal.
And attractive alternatives to National Foods remain, especially if the Australian assets of the troubled Italian dairy group Parmalat are put on the block.
