French dairy group Lactalis firming to win Mainland contest

Mainland Group has food brands such as Western Star, Mainland and Perfect Italiano.

Speculation is mounting that Fonterra is progressing with a deal to sell its $2bn-plus dairy brands spin-off Mainland Group to Lactalis, which has pulled ahead of rivals in the competition.

France-based Lactalis, advised by Rothschild, is thought to have been in a strong position to buy Mainland, which includes food brands such as Western Star, Mainland and Perfect Italiano.

Not only would it have synergies, given it also operates in the Australian dairy industry as well as globally, but it was one of the only bidders for the entire business and not just different parts.

Also a plus for Lactalis has been that it has recently been cleared to buy the business by the Australian Competition and Consumer Commission.

But market talk leaves questions unanswered about where Bega Group fits in the negotiations after it was earlier denied due diligence because of its stance over its rights for its brands that are licenced for use to Fonterra.

Bega’s interest has been with the Australian operations and potentially those in New Zealand, but would need a partner to take the global operations as part of the offering, which are mainly in Asia.

As reported earlier by DataRoom, Bega was expected to partner with Friesland Campina, which was keen on the Asia operations of Mainland, and may have bid for the business without gaining access to the books.

Bega has expressed its desire to buy Mainland, and may be positioned to pay a high price because of the synergies it could extract. But it would need to raise equity, and gaining ACCC clearance was expected to be a tougher ask.

Bega has also put Fonterra off-side by refusing to give up its first right of refusal to take back its brands and break its contract on the grounds of a change of control. That matter has been fought through legal channels.

Perhaps Fonterra has already deemed it unlikely that Bega would gain ACCC clearance, and the dairy co-operative based across the Tasman has always had a preference for selling Mainland Group in one line to a buyer.

The other bidder in the mix has been Japan’s Meiji, but the Japanese are known to take their time over talks, and if Fonterra wants a quicker result would be unlikely to make it the preferred bidder.

Lactalis owns a range of brands such as Pauls, Vaalia, Oak, Président and Lactalis Foodservice.

Fonterra is selling its food services businesses in Australia, New Zealand and the Pacific as well as an ingredients business in New Zealand that combined, generates $200m of annual earnings before interest and tax.