15 Jun 2012

Fonterra bid faces scrutiny

9:17 pm on 15 June 2012

Commerce Commission staff are investigating Fonterra's planned takeover of New Zealand Dairies' milk processing plant in South Canterbury.

Farmers were owed an estimated $30 million when the Russian-owned factory went into receivership in May this year.

Commission staff will investigate Fonterra's plans to keep the plant running through the 2012-13 milking season, or until a sale is completed.

Section 27 of the Commerce Act prohibits anti-competitive behaviour and structures in markets, including contracts, agreements or understandings that substantially lessen competition, such as by shutting down a rival buyer for raw milk.

But Fonterra's Gary Romano says the big farmer-owned cooperative has no intention of shutting the plant.

"Our focus is to run that plant, and to run it indefinitely."

In the first year, farmers would be allowed to supply milk to Fonterra under contract, and then in the second year, they would be able to buy shares in the cooperative.

Rival dairy processor Synlait - controlled by China's giant Bright Dairy & Food Co Ltd - says it has also made a bid for the Russian-owned plant at Studholme, near Waimate.

The receivers appointed for New Zealand Dairies, BDO Chartered Accountants, says the sale to Fonterra provides the best deal for the company's stakeholders.

Conditional on Commerce Commission clearance, the sale will results in existing farmer-suppliers receiving 100 cents in the dollar for money the company still owes suppliers.

Fonterra says the plant will complement its new Darfield plant in Canterbury, which is due to start taking milk in August.

The Studholme plant processes about 150 million litres of milk a year into powders for export.