Philippines company San Miguel has become the most important dairy player in Australasia and one of the largest in the world following two significant decisions this morning that will cost it a total of $2.5 billion.

The company has effectively won control of Australian dairy giant National Foods following the decision by its rival, farmer-owned New Zealand mutual Fonterra, to withdraw from the battle with a $200 million-plus profit. Check out today’s Fonterra letter to the ASX here.

Fonterra’s decision came five hours after San Miguel was reported as the winner of the auction to sell New Zealand’s number two dairy group, owned by Graeme Hart, the man who controls Burns Philp and Goodman Fielder in Australasia.

NZ Dairy Foods is the largest consumer dairy products group in New Zealand (Fonterra dominates the export market) so with the products from National Foods, San Miguel will become the leading player in this segment in Australasia. Fonterra will remain the biggest export player.

After that San Miguel will have laid out around $2.5 billion to become the industry leader in Australia and number two behind Fonterra (but leader in consumer products). National Foods will cost a tick over $1.9 billion and NZ Dairy Foods has been estimated at around $500 million.

In its statement Fonterra said it had decided to quit the National Foods bid because the price wasn’t right. Second prize isn’t too shabby, a net profit of around $250 million, as Fonterra will walk away with $362 million in cash, plus another $45.5 million in dividends during the time it held and built up its powerful stake of nearly 19% or 56.6 million shares.

The end looked clear for Fonterra and the future control of National Foods when San Miguel, which also owns the James Boag brewing business in Australia, lifted its offer to $6.40 a share on 6 April.

That, and an unfavourable disclosure forced by the Takeovers Panel, were seen as placing enormous pressure on the company and its management, led by CEO Andrew Ferrier, from the dairy farmer shareholders in New Zealand who were already growing restive at the impact the National Foods bid would have on their returns. Instead of a cut in returns, the farmer shareholders can now look forward to either a distribution or a maintening of current returns for a couple of years.

What it means for the future of Andrew Ferrier is uncertain. He’s already burnt some goodwill with farmer shareholders by pushing hard for the bid and doing the deal with Sodima of France (the Yoplait licence holder) that could have cut returns even further if the National Foods bid had been successful. Now he has to face a new owner for the biggest competitor, which will have both NZ Dairy Foods and the small National Foods operations in New Zealand with which to attack Fonterra.

In some respects this is a sad day for Australia because National Foods was our largest remaining independent food producer. Graeme Hart and Burns Philp swallowed Goodman Fielder two years ago and the Pacific Dunlop food business disappeared into Nestlé and Simplot for $1.1 billion ten years ago.

Much of this just contines the fallout from the paper-shuffling entrepreneurs of the 1980s as it was the banks which drove the float of National Foods out of the Adsteam empire in the early 1990s and Goodman Fielder was also a bit-player in John Elliott’s paper-shuffling days running Elders IXL. It’s amusing that Alan Bond was reported to have tried to by San Miguel for $350 million in 1987. This is from a story by Eric Ellis in The SMH in March 1987 which shows various long-gone Australian entrepreneurs circling the new top banana in the Australasian dairy industry:

Mr Alan Bond is in Manila poised to make a $350 million counterbid for Asia’s largest brewer, the Manila-based San Miguel Corporation. Bond Corporation is understood to have indicated to the Philippine Government that it would be ready to offer 125 pesos (A$9.10) a share for San Miguel. Such an offer would top the only bid yet made public, a 100 peso offer from Mr Bruce Judge’s Barwon Farmlands Ltd.

Rumours about the Bond foray emerged in Hong Kong and Manila as suitors for one of the pearls of Asian business descended on the Philippines from around the world. Elders IXL’s Mr John Elliott is among the parties interested.

Oh well, at least we’re good at sport.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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