Dairy exporter and marketer Fonterra on Monday extended it's takeover bid for Australia's National Foods.
Fonterra, the world's largest dairy exporter, made a $A1.62 billion bid for National Foods in October but was trumped by a $1.78 billion offer from Filipino food giant San Miguel at $6 a share.
Fonterra, which owns about 19% of National Foods, said in a statement that it would extend it's $A5.45-a-share offer to March 8 from February 15.
Big decision
Fonterra is facing its biggest ever commercial decision this week when it decides whether or not to offer more than $2 billion to buy National Foods.
When Fonterra launched its takeover bid for National Foods last October it was labelled as "hostile" and grossly inadequate. But when the Filipino brewer San Miguel trumped Fonterra the bid was welcomed as friendly and recommended.
The moves have left Australian farmers restless.
"If we more or less sell out our brands to New Zealand...I don't see that it helps Australia long term", National Foods supplier Garry McNamara says.
Judy and Garry McNamara farm between 800 and 1,000 holstein cattle in southwest Victoria. But the prospect of Fonterra taking over their company has them worried because of its 50% ownership of rival company Bonlac.
"In this area, a lot of farmers left Bonlac and have looked for other alternatives and it's a long time before that trust gets built back," says Judy while Garry says most farmers are very wary of them.
If Fonterra swallows National Foods, it will boost its share of Australia's dairy market from 14 to 23%.
Professor Keith Woodford from Lincoln University agrees Australian farmers will be nervous of the sheer size of Fonterra and "don't like the idea of the Australian dairy market, at the consumer end, being dominated by this big New Zealand company".
Australian industry leaders respect Fonterra's expertise, but worry that the kiwi giant could stifle competition.
Allan Burgess, Australian Dairy Farmers president, says Australian farmers can be comfortable if the competitiveness for their milk stays in Australia. "If that becomes diminished we'd be very concerned," he says.
National Foods has pulled no punches in response to Fonterra's takeover bid. One News business correspondent Owen Poland says the company appears to have adopted something of a siege mentality at its Melbourne headquarters ever since Fonterra launched its takeover bid.
He says the company has refused repeated requests for an interview to discuss the takeover and explain why it rejected Fonterra in favour of San Miguel.
Meanwhile, New Zealand farmers are also worried about Fonterra paying too much for National Foods brands and dragging down future payouts.
"It's like anything, if you pay too much for a business and overgear it with your capital, it's going to be quite hard to recoup and make a profit," says Kevin Wooding from Dairy Farmers of New Zealand.
Analysts believe Fonterra will struggle to make National Foods pay the interest on the loans it needs to buy the company.
"It won't in the short term put any money into farmers pockets at all in New Zealand - not a cent," says Woodford.
But Fonterra says it's got a strong track record of success in Australia dating back 40 years and it's playing down any concerns.
"I'm very strong of the view that this concern around farmer/shareholders is being overplayed," says Fonterra chairman Henry van der Heyden.
However, commentators say the takeover bid has exposed failings in Fonterra's co-operative structure which means there's no independent scrutiny of its finances.
Dairy industry commentator Tony Baldwin says Fonterra shareholders are operating in a vacuum.
"They have no information on whether this is a good bid, whether the price is right, whether Fonterra will actually add value to their payout," says Baldwin.
But van der Heyden says it's for the board and management to make those decisions.
"The farmers will hold the board accountable for those decisions, and the board will hold the management accountable for those decisions," he says.
