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Fonterra cleared to acquire NZDL processing assets

By Mark Astley , 07-Sep-2012

Dairy exporter Fonterra has been cleared to acquire the processing assets of New Zealand Dairies Limited’s (NZDL) by the New Zealand Commerce Commission.

The Commerce Commission has given Fonterra the go-ahead to complete its acquisition of NZDL’s processing assets, namely its Studholme plant -  stating its satisfaction that the takeover would not result in reduced industry competition.

The plant, which produces milk powder solely for export, takes Fonterra’s processing facility count up to 27.

On 6 July 2012, the Commerce Commission received an application from Fonterra seeking clearance to acquire the processing assets of NZDL from receivers following the firm’s collapse in May 2012.

NZDL was placed in receivership on 17 May 2012 after its owner, Nutriek Group, was declared bankrupt in Russia.

The application for clearance has come under scrutiny in recent months, with a rival claiming that its higher bid was rejected by receivers in favour of a "reluctant" offer from Fonterra’s.

No lessening of competition

“Comparing the acquisition by Fonterra to the scenario where another bidder would acquire NZDL’s assets, the Commission is satisfied that the acquisition would not be likely to result in a substantial lessening of competition,” said Commerce Commission chairman Dr Mark Berry.

“The Commission also considers that Fonterra’s cooperative ownership structure and the regulatory environment in which it operates, together with its national raw milk pricing strategy, removes Fonterra’s incentive and ability to depress the prices it pays farmers for raw milk in the South Canterbury and North Otago regions.”

Berry added that given the Studholme plant’s status as a ‘manufacturing for export’ facility, the Commerce Commission felt it was not necessary to consider downstream markets such as butter and cheese.

Fonterra, which currently processes around 90% of the raw milk produced in New Zealand, has welcomed the decision.

“The investment in the Studholme plant underpins our commitment to the dairy industry in Canterbury, one of the fastest growing dairy regions in New Zealand. We’re pleased we have been able to offer certainty to the former suppliers of NZDL and staff at the factory,” said CEO Theo Spierings.

Fonterra has been operating the Studholme plant and collecting milk from NZDL supplier for the receivers in recent months.

The plant will now accept around 800,000 litres of milk a day from former NZDL suppliers and Fonterra shareholders.

“Reluctant bride”

Fonterra’s application for clearance to acquire the Studholme plant has come under pressure in recent months, with one rival bidder calling for an investigation into why its more lucrative bid was not accepted by receivers.

In its application to the Commerce Commission, Fonterra claimed that it had not pursued the acquisition. The anonymous bidder questioned why the receiver did not further explore its more lucrative offer, if Fonterra was such a “reluctant bride”.

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