ACCC make call on Lactalis’ bid for Fonterra

The competition watchdog will not oppose Lactalis’ bid for Fonterra’s Australian assets, but is yet to review Bega’s rival bid. See the latest.

Fonterra’s consumer, dairy ingredients and food service businesses are expected to fetch at least $NZ2bn, with the Cobden plant (pictured) one of the jewels in its Australian crown of assets.

Australia’s competition watchdog will not oppose a proposal from French dairy giant Lactalis to buy Fonterra’s consumer, dairy ingredients and food service businesses.

But the Australian Competition and Consumer Commission is yet to decide if it will also review Bega’s rival bid.

“We are aware of Bega’s announcement of its interest in acquiring Fonterra Oceania,” an ACCC spokesman said.

“Whether the ACCC decides to commence a public review (of Bega’s bid) depends on a range of factors, including the completeness of information provided by the parties, the risk of the proposed acquisition substantially lessening competition, and whether or not the proposed acquisition is purely speculative or hypothetical.”

Meanwhile the ACCC says it has no major concerns with the Lactalis bid, even though it and Fonterra both buy raw milk from dairy farmers in Victoria and Tasmania, as well as processing and supplying a range of dairy products across Australia.

“We looked very closely at the transaction as it will combine two of the largest buyers of raw milk in Victoria and lead to some further consolidation in Tasmania,” ACCC deputy chairman Mick Keogh said.

“While we acknowledge the concerns raised by some representative bodies, after careful consideration we have determined that the acquisition is unlikely to result in a substantial lessening of competition.”

The ACCC found that across Gippsland, the Murray and Western Victoria, alternative buyers of raw milk would continue to constrain Lactalis if the acquisition proceeded.

“We found that while the industry in Tasmania is already concentrated, Lactalis has a limited presence and the acquisition would not substantially alter the market dynamics. If the acquisition proceeded, Lactalis would continue to be constrained by Saputo and, to a lesser extent, Mondelez,” Mr Keogh said.

“Because Fonterra and Lactalis have differing end product mixes, they often seek to acquire milk from farmers with different production profiles. Accordingly, we found that they are not likely to be each other’s closest competitors. This was reflected by analysis which showed very few farmers switched between the two processors.”

While the ACCC has reviewed Lactalis’ proposal, Fonterra is yet to make a decision as it weighs up all offers.

Other bidders for the business include Meiji, Friesland Campina and Bega Cheese.

Market analysts say Fonterra is likely to net at least $NZ2bn for its Australian consumer, food service and ingredients business, with a portfolio of factories including Cobden, Stanhope and Darnum in Victoria.

The ACCC concluded the sale of Fonterra’s businesses to Lactalis was also unlikely to substantially lessen competition in the wholesale supply of dairy products such as drinking milk, cream, cheese, chilled yellow spreads and dairy ingredients like milk powder.

It found the differing production focus of Fonterra and Lactalis meant that there was limited overlap between the two in the supply of these products.

For longer-life, readily transportable products such as cheese, dairy ingredients and chilled yellow spreads, the ACCC found that retailers and wholesalers would also continue to benefit from import competition.

“Supermarkets like Coles and Woolworths are also major customers in this market, with significant levels of bargaining power,” Mr Keogh said.

“They also have the ability to sponsor new entry or even enter directly, as Coles has demonstrated through its acquisition of Saputo’s milk processing assets.”

The ACCC commenced the review of the proposed acquisition on May 2, consulting industry stakeholders including farmers, dairy groups, retailers and foodservice businesses.

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

Fonterra owns consumer brands such as Western Star, Mainland, and Perfect Italiano, and produces certain Bega Cheese products under licence. It supplies foodservice products via the Anchor Food Professionals brand.