SMC faces uphill battle in bid for New Zealand’s Dairy Foods

San Miguel Corp. (SMC) is facing an uphill battle in its bid to acquire New Zealand Dairy Foods Holdings Ltd., which owns the rights to the Anchor butter brand and produces Fernleaf dairy products, as it is expected to be joined by large food groups Nestle S.A. and Groupe Danone in the bidding race.

Analysts said a three-way fight is looming among San Miguel, Nestle and Groupe Danone for control of New Zealand Dairy Foods.

Nestle is one of the world’s largest food companies, considerably larger than its nearest rivals Kraft Foods Inc. and Unilever Plc. With products like Perrier and Nescafé, it is the market leader worldwide in coffee and mineral water, the largest manufacturer of pet food, and is fast increasing its share of the ice cream market.

Group Danone, on the other hand, is number one worldwide in fresh dairy products and packaged water and number two in cereal biscuits and snacks. Its major brands include Dannon, Evian, Volvic, Aqua and LV biscuits.

SMC earlier said it was "studying" a potential bid for New Zealand Dairy Foods, which has itself confirmed it is in discussions with "certain parties" regarding a possible sale of all or part of its business.

New Zealand Dairy Foods, however, stressed that there can be no certainty as to the outcome of these discussions.

The DominionPost newspaper reported on its web site that New Zealand Dairy Foods, which is owned by an investment company associated with businessman Graeme Hart, could be worth up to NZ$700 million.

SMC’s interest in New Zealand Dairy Foods could be an alternative if Southeast Asia’s largest food and beverage conglomerate fails in its bid to acquire Melbourne-based National Foods Ltd. as it seeks the dominant position in Australia’s A$11 billion dairy industry.

National Foods would give SMC leading Australian consumer brands such as Pura and Skinny milk, Big M flavored milk, King Island and Farmers Union cheese, and Yoplait and Fruche dairy desserts.

Dairy is the weakest link in SMC’s product lineup, which includes beer, hotdogs and soft drinks.

SMC has yet to decide whether it will trump rival Fonterra Co-operative Group Ltd.’s counter bid, which values National Foods at A$6.20 a share. SMC’s bid currently stands at A$6-a-share offer for National Foods.

Fonterra was an owner of New Zealand Dairy Foods until a forced divestment in 2002 when Hart took control. Fonterra owns 19 percent of National Foods.

SMC earlier said it was interested in New Zealand Dairy on its own merits, and not as a consolation prize should it fail to win control of National Foods.

Analysts believe that SMC’s potential bid for New Zealand Dairy Foods is a step in the right direction.

As it aims to duplicate the success of its own brands overseas, SMC has adopted a new strategy designed to acquire established local brands.

To fund its bid to become one of Asia’s 10 largest food groups, SMC will undertake a stock rights offering to raise around $326 million. The conglomerate also has secured a $1.85 billion credit line.

SMC, which dominates its home market in beer, liquor, soft drinks, processed food and poultry, has been scouring for opportunities abroad to maintain rapid sales growth in the past years.

Early last year, SMC unveiled plans to expand its operations in the Asia Pacific region, focusing on seven areas – China, Thailand, Malaysia, Indonesia, Australia, Taiwan and Vietnam.