Closing price above $1.82 is crucial, page-705

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TOP NEWS
Wed Jun 8, 2016 | 5:45 AM EDT
Dairy industry reshaped by Asian deals as milk price sours
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* 876 deals since 2010, but sector still fragmented
* Producers and farmers squeezed by low prices
* Multinationals seek growth in emerging markets
By Martinne Geller and Colin Packham
LONDON/SYDNEY, June 8 (Reuters) - The global dairy industry is being reshaped by a wave of dealmaking driven by low milk prices and growing demand for products like yoghurt and baby formula in Asia and the Middle East.
Prices for dairy ingredients like milk and butter have fallen sharply for more than two years, hit by a global oversupply, squeezing the finances of farmers and producers and pushing many towards consolidation in search of economies of scale.
By contrast, at the other end of the sector, the low ingredient costs are plumping the profit margins of companies that make "value-added" products like yoghurt, cream cheese and infant formula, making them attractive targets for food multinationals and private equity investors.
There is speculation about potential deals in the United States, for example, involving the likes of WhiteWave Foods , which sells premium dairy products and alternatives like soy milk, and Greek-yoghurt maker Chobani, which has rejected suitors including PepsiCo.
But M&A activity is increasingly focusing on emerging markets in Asia, the Middle East and eastern Europe, where expanding middle classes are boosting demand for expensive dairy products and offering the best growth prospects.
The dairy industry is "one of the more attractive growth markets from a long-term perspective, in terms of per capita consumption", said Wells Fargo analyst John Baumgartner.
While there have been 876 deals in the global dairy industry since 2010, worth a total of $57.3 billion, according to Thomson Reuters data, the sector is still highly fragmented - leaving room for further consolidation.
The top five players - France's Danone and Lactalis, Switzerland's Nestle, and China's Mengniu Dairy and Inner Mongolia Yili Industrial Group - account for just 18 percent of the retail market for all dairy products, which was worth $446 billion last year, according to Euromonitor International.
The deals in the sector have included some blockbusters like Nestle's $12 billion purchase of Pfizer's infant nutrition business and Lactalis's move to control Italian rival Parmalat. But most have been smaller bolt-on buys.
PRODUCERS SQUEEZED
On global commodity markets, dairy prices have fallen by about half since 2013 and a quarter in the past year alone, according to the U.N. food agency's Dairy Price Index, which factors in ingredients such as milk, butter and cheese.
This has helped drive consolidation among producers; Mexico's Grupo Lala agreed to buy certain U.S. assets from Laguna Dairy last month, for example, while Italy's Parmalat bought 11 dairy plants from BRF in Brazil in 2014.

New Zealand's a2 Milk last year rejected a joint takeover offer from Freedom Foods and Dean Foods , but remains a possible target, analysts say.

"There's been severe pressure on the milk price ... there is always a huge drive for efficiencies and part of that is through consolidation and taking out additional costs where possible," said Trefor Griffith, a food and beverage sector specialist at financial consultancy Grant Thornton.
The price squeeze has also prompted some major producers with deeper pockets, such as Australia's Murray Goulburn and Ireland's Glanbia, to diversify into products like nutritional yoghurts and dairy sports drinks.
It is manufacturers of these kind of higher-margin dairy products, which also include baby formula and cream cheese, which are increasingly becoming deal targets, particularly in emerging markets.
Reuters revealed last month that private equity firm KKR was bidding against Saudi dairy giant Almarai for a majority stake in Abu Dhabi-based National Food Products, one of the biggest food and dairy product manufacturers in the United Arab Emirates.
Denmark's Arla Foods agreed a joint venture with Egyptian UHT-milk and yoghurt maker Juhayna last year which gave it access to the market there. It told Reuters it had turned its M&A focus to markets outside the EU to regions including the Middle East, China and Africa.
New Zealand-based multinational dairy company Fonterra has also formed a joint venture with China's Beingmate to supply baby formula to Chinese consumers.
ASIAN FIRMS EXPAND
Meanwhile Chinese companies looking to tap their growing domestic market and also expand overseas have looked to strike deals in New Zealand and Australia - two of the world's biggest dairy exporters - for both supply purposes and know-how.
Inner Mongolia Fuyuan Farming, one of China's biggest dairy farmers, last month agreed to buy a 79 percent stake in Australia's Burra Foods for A$300 million.
"At the core of takeover interest is the ambition to use Australia to get into Asia," said Melbourne-based Rabobank dairy analyst Michael Harvey.
China's Bright Dairy & Food has a 40 percent stake in New Zealand's Synlait milk, while Shanghai Pengxin continues to expand in New Zealand after buying 16 dairy farms in 2011.
Some Asian companies are also taking advantage of Moscow's ban on food imports from the West - retaliation for sanctions over the Ukraine crisis - to pour money into Russia.
Vietnamese dairy producer TH Group has just begun work on a dairy facility near Moscow as part of a $2.7 billion, 10-year project, while the state-backed Russia Direct Investment Fund is building a $1 billion dairy complex with partners from Thailand and China.
Analysts and bankers expect the dairy industry deal flow to continue apace in coming years as long as emerging market wealth increases.
"As people become wealthier they buy refrigerators, then they buy fresh milk, and then cheese and yogurt and then more expensive yogurt," said one consumer banker. (Additional reporting by Freya Berry in London, Rebecca Howard in Wellington and Dominique Vidalon in Paris; Editing by Jane Wardell and Pravin Char)
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New Zealand's a2 Milk last year rejected a joint takeover offer from Freedom Foods and Dean Foods , but remains a possible target, analysts say...
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As far as I know, a Chinese company, "New Hope", participated in the takeover bid as well. So, A2m remains a potential takeover target from a Chinese company/funds?