Fonterra in back seat for Aussie bid

Fonterra has abandoned its own bid for Australian co-op Dairy Farmers to play second fiddle to National Foods.

Dairy Farmers said yesterday that it had granted National Foods and Fonterra permission to work together to decide terms to enhance the National Foods-led bid.

Victoria's Warrnambool Cheese and Butter is also part of the bid. Dairy Farmers is expected to fetch about $1 billion.

Australian sources said Fonterra had probably realised it would be outbid by National Foods and the other main bidder, Italy's Parmalat in combination with Victorian co-op Murray Goulburn. Fonterra declined to comment.

The tie-up with Kirin-owned National Foods will give Fonterra at least a chance of a slice of the action from the sale. It will also allow National Foods to resolve some competition issues; together with Dairy Farmers it would have about 60 per cent of the Australian yoghurt market.

The likely split of Dairy Farmers assets is that Fonterra would get some or all of the yoghurt business while National Foods and Warrnambool would run a joint venture for the cheese assets. Fonterra might also get some fresh milk assets as National Foods may face competition issues in New South Wales and South Australia.

Fonterra's decision to join National Foods also seems to be linked to its purchase of Nestle's Australian yoghurt and dairy dessert business last week. An Australian source said Fonterra needed to get more yoghurt assets to gain scale and reduce costs.