Grand dairy plan fails over merger

By PHILIPPA STEVENSON

The wheels have fallen off the dairy industry's grand scheme for taking on the supremos of international trade, potentially a victim of too much speed, too soon.

Yesterday, New Zealand Dairy Group and Kiwi Dairies admitted the total failure of merger negotiations crucial to the welding of manufacturing and marketing arms into a worldbeating trader.

That forced the mega co-op establishment board to acknowledge defeat, move to wind itself up, and trash more than $3 million worth of work on a Commerce Commission application.

"So, there's a year's work gone," said a disappointed board chairman Graham Calvert.

"We achieved the legislation, we achieved the business plan. We have, in my view, a strong case to the Commerce Commission, but I have to have agreement between the two major companies and I have not got that."

The companies said they were split over relative values, struck hardline positions and rejected calls for independent valuers. Kiwi's 11th-hour bid for independent arbitration was rejected by Dairy Group because of an array of conditions it found untenable.

But last night Dairy Group chief executive Graeme Milne pointed to difficulties caused by speedy industry change which cast doubt on the strength of the companies' figures.

"Overall, it didn't happen because there had been several changes in the two companies with mergers on both parts; an acquisition by Kiwi of the [specialty meats company] Food Solutions - five big changes including a change in the industry payment system -- which all meant there was no recent audited accounts to compare the two companies' performances."

Mr Milne said the upheaval "made it very difficult to do a valuation exercise which both companies could have confidence in."

Acting Agriculture Minister Michael Cullen said the Government was disappointed.

"We are concerned that this ongoing uncertainty made be threatening the future of one our most important sectors."

He said the special enabling legislation would remain in place, as scheduled to September 1.

Dairy Farmers of New Zealand chairman Charlie Pedersen suggested speed was partly to blame.

Parochialism may have been a factor but the industry had contemplated "too big a shift to get its mind around."

Mr Calvert was adamant the mega co-op plan was dead, but others remained hopeful.

Mr Milne, a founding architect of the mega co-op plan five years ago, refused to call it quits.

"If I have anything to do with it, I won't give up. It's the right solution, so it must prevail. But today with what has happened we can't meet the deadline for this legislation, so for the moment it's gone."

Kiwi chief executive Craig Norgate, picked as a possible mega co-op head, declined to give reasons for the failure and said there would be no further attempts "for now."

"There are other ways forward, but farmers want the mega co-op and so it is the likely course."

Dairy Group chairman Henry Van Der Heyden said: "If MergeCo is really the best option, we will regroup over the next few months and agree a better process for making it happen."

Underscoring the gulf between the two, Mr Van Der Heyden added that "certainly, I do not see the will there on Kiwi's side at this moment."

However, Kiwi chairman John Young said his company had "been absolutely sincere in its approach to form MergeCo."

Mr Pedersen, optimistic to the end that the merger would succeed, described himself as shocked.

"You can't blame anybody but us as farmers. We have to take responsibility for the fact we haven't formed this."

Kiwi shareholder Antonie Eggink, a spokesman for mega co-op lobby group Farmers for Control, said he had not given up and it was likely earlier threats to call extraordinary company meetings would be followed up.

In the same group, Dairy Group supplier Catherine Bull promised farmers would not lie down for a decision "against their overwhelming wishes."