Canadian dairy giant, Saputo, looks set to take ownership of Lion Dairy and Drinks' specialty cheese business by year's end after the competition watchdog decided it will not oppose the $280 million deal.
However, the Australian Competition and Consumer Commission has warned any further dairy processing consolidation in Tasmania would cause "significant concern".
It noted the Saputo deal would result in a significant degree of concentration in Tasmania.
Saputo has bid for Lion's Tasmanian cheese processing plants at Burnie and King Island, and its premium cheese brands, including South Cape, King Island Dairy, Mersey Valley and Tasmanian Heritage.
Lion made plans to quit all its dairy operations a year ago, but has so far only accepted Saputo's offer for its cheese assets.
The deal still needs Foreign Investment Review Board approval, but as Lion is currently overseas-owned by Japanese brewing giant, Kirin, FIRB's consent is widely anticipated after this week's ACCC decision.
We looked very closely at the transaction because it will combine the processing plants of the second and third biggest raw milk buyers in Tasmania
Saputo already owns a milk powder processing plant in Smithton, Tasmania, picked up last year after buying the big Murray Goulburn co-operative's assets for $1.3bilion.
The ACCC investigation focused on the likely impact Saputo's takeover could have on buying competition for raw milk in Tasmania.
"We looked very closely at the transaction because it will combine the processing plants of the second and third biggest raw milk buyers in Tasmania," said ACCC deputy chairman, Mick Keogh.
"We spoke with many farmers and other interested parties."
He said some farmers were concerned Lion's competitive contract terms would be lost if the acquisition went ahead and processor competition was reduced.
Any further consolidation of dairy processors would cause significant concern
However, most farmers were not concerned about the transaction, believing the remaining milk processors would keep price and non-price terms competitive.
Saputo investment expected
"Many farmers expressed strong support for Saputo's investment in cheese production in Tasmania," Mr Keogh said.
"Ultimately, and on balance, we do not think this acquisition is likely to have the effect of substantially lessening competition."
However, the ACCC conceded a significant degree of concentration was occuring in the Tasmanian dairy sector.
"Any further consolidation of dairy processors would cause significant concern," Mr Keogh said.
- Saputo bid for Lion cheeses to be reviewed by ACCC
- Lion to sell dairy and drinks division
- Fonterra to exit milk pools, but not Australia
New Zealand-owned Fonterra, which is under pressure back home to reduce its debts and rationalise some international activities, is the largest buyer of raw milk and Saputo's closest competitor in Tasmania.
Other processors include Mondelez-Cadbury, Lactalis-Parmalat and a small fresh milk plant in Hobart which Lion is not yet selling.
We remain committed to developing mutually beneficial relationships with our Australian stakeholders
Saputo Inc's board chairman and chief executive officer, Lino Saputo, Jnr, was "very pleased" with the ACCC's decision and predicted the takeover would be completed by late 2019.
"We now await the FIRB decision," he said.
"We remain committed to developing mutually beneficial relationships with our Australian stakeholders and our goal is to continue to do so with the addition of the specialty cheese business."
Cheese market impact
The ACCC also examined the impact of the proposed acquisition on the supply of cheese in Australia, deciding the proposed acquisition was unlikely to substantially lessen competition in the supply of cheese.
Saputo's cheese brands already include Coon, Millel, Sungold, Cracker Barrel, Great Ocean Road and Devondale.
Saputo also produces fresh milk, butter, cream and milk powder in Tasmania, Victoria and NSW.
"Lion focuses on premium speciality cheeses and Saputo focuses on everyday cheeses," Mr Keogh said.
"We considered that a combined Saputo-Lion would face continued competition from domestic cheese producers, supermarket private labels, and cheese importers."
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