Ice-cream deal puts heat on rival

By PHILIPPA STEVENSON agricultural editor

Kiwi Dairies' impending deal for a majority interest in a $550 million Australian dairy foods company leapfrogs Dairy Board transtasman plans and turns up the heat on its manufacturing rival.

Kiwi chairman Greg Gent confirmed yesterday that it was in the final stages of talks to buy a majority shareholding in Perth-based Peters and Brownes, Australia's fourth-largest consumer dairy foods firm.

The Business Herald reported yesterday that the deal could see New Zealand's second-biggest dairy company pay up to $A208 million ($276 million) for Peters and Brownes, which claims the No 2 position in the $A1.7 billion Australasian ice-cream market.

Peters and Brownes, which owns the New Zealand Tip Top ice-cream brand, would provide many opportunities for Kiwi's own domestic market subsidiary, Mainland Products, said Mr Gent.

Chief executive Craig Norgate said that negotiations, underway since May, could be completed within days, and Kiwi's shareholding could be between 50 per cent and full ownership.

Unsettled legal issues surround the ownership of Peters and Brownes. They relate to a 50 per cent shareholding in the company jointly held by group managing director Graham Laitt and financial partner Gad Raveh.

The balance of the shares are held by a range of institutions.

Conclusion of the deal would see Kiwi create the first major transtasman dairy company, a move the Dairy Board hoped to pull off with a merger with Victorian company Bonlac.

Kiwi's acquisition would lift its turnover to $3.5 billion from $2.6 billion, giving it level revenue pegging with rival manufacturer New Zealand Dairy Group. That could prove significant in talks between the two on the industry's future structure which have been under way since the collapse of their mega co-op plans in March.

Differences over valuations were a key factor in the merger failure.

Mr Norgate said the planned Australian deal did not further distance the pair. "We'd say the opposite - it builds an even stronger market position that makes the mega co-op even more sensible from a commercial point of view.

"It does make Kiwi even more valuable, which in itself may be an issue, but you can always cross those bridges if the vision is shared."

Kiwi's plans in Australia complemented the board's and the proposed acquisition also highlighted that the Dairy Board Act was not the constraint on the companies that some thought it was, he said.

"To the extent that it involves export product, we would still have to, and would probably choose to, export through the Dairy Board."

Mr Gent said that initially the two businesses would continue separately, but the company would work to bring Mainland and Peters and Brownes together.

Savings would be possible in distribution networks for chilled and frozen products. The Tip Top network, particularly, created exciting opportunities for Kiwi by complementing Mainland's network.