All eyes in the dairy industry are watching Bega Cheese, expecting the NSW-based former farmer co-operative to confirm this week it will buy Japanese-owned Lion's dairy business.
Bega, which has halted trading in its shares until Friday promising news of "a proposed acquisition" and capital raising, is officially still undertaking due diligence on its takeover target.
However, speculation has been in overdrive this week about the company being ready to pay about $527 million after a leak from Japan's Kirin Holdings, reported in the Japanese financial press, suggested the Lion deal had been done.
The sale was later denied by Kirin, but industry observers noted the report was surprisingly well informed and followed close on the heels of news that Canadian giant Saputo had withdrawn from the final round of the bidding process.
The only other final contender has been private investment group and recent dairy sector investor Tanarra Capital, supported by several local superannuation funds.
Acquiring Lion, Australia's only national milk processing business, would dramatically expand and diversify Bega's Victorian and south eastern NSW milk supplier base, spreading its processing operations from Malanda in North Queensland to Perth.
The fast growing dairy and grocery business, which also owns Vegemite and Australia's biggest selling peanut butter range, now looks set to add some of the nation's best-selling flavoured milk and yoghurt lines and the powerful Dairy Farmers milk brand to its portfolio.
Lion Dairy and Drinks brand names include the Pura, Dairy Farmers and Masters white milk and cream lines; Dare, Big M, Classic and Farmers Union flavoured milks, and Yoplait and Farmers Union yoghurt.
It also owns the Daily Juice and Berri fruit juice names.
A month ago Bega's executive chairman Barry Irvin told shareholders of the company's determination to "keep diversifying" its food business footprint because it needed to insulate itself from climate and market risks.
He said further consolidation would create extra value for the dairy industry and Bega was ready to participate in consolidation opportunities whenever they arose.
Lion was set to be acquired earlier this year by China's Mengniu Dairy Company for $600m, but the deal collapsed in August because of concerns by Federal Treasurer Josh Frydenberg about the size of the foreign investor's stake in the Australian dairy sector.
Mengniu bought the Bellamy's Organic business last year and also has a stake in Victoria's Bulla dairy business.
Expectations are that Bega's takeover would be funded by a $400m capital raising and debt.
However, given the wide span of Lion's current assets there is also speculation Bega may choose to offload some of its newly acquired assets to reduce its debt exposure.
"Bega Cheese, with Barry Irvin at its helm, has proven to be a very judicious and successful agribusiness," said chief executive officer of NSW based industry advocacy group Dairy Connect, Shaughn Morgan.
"He is respected by farmers for adopting business growth strategies which generally are beneficial for producers."
Lion suppliers have been in limbo for a long time, waiting for some stability about the processor's future
Mr Morgan said while he had no inside knowledge of Bega's plans or the likely outcome of the Lion sale process which had been running for 18 months, he felt a settlement would be welcomed by producers.
"Lion suppliers have been in limbo for a long time, waiting for some stability about the processor's future," he said.
"If Bega's track record is anything to go by this is likely to be a significant new chapter in the company's growth."
Dairy Farmers Milk Co-operative members who supply about 230 million litres of milk annually to Lion, would be happy with either Bega or Tanarra taking control, said executive officer, Mark Kebbell.
"Both are Australian businesses which means there won't be Foreign Investment Review Board concerns and approval delays," he said.
We are supportive of any expansion agenda by either party
Tanarra, which recently bought a 75pc stake in Barambah Organics, had briefed DFMC officials about its own general expansion plans in the dairy sector, including building on Lion's Asian market footprint.
"We are supportive of any expansion agenda by either party, but we've got no visibility on how the sale will play out," he said.
DFMC represents members on about 250 farms in Queensland, NSW, Victoria and South Australia,
Mr Kebbell noted the Central West NSW and northern NSW-Queensland milk supply market would be a "very different" and more expensive supply game for southern-based Bega to move into.
Other industry analysts had similar observations, pondering if Bega may choose not to extend its dairy footprint as far as Queensland, although the company had no hesitation about buying into the peanut processing industry soon after it acquired the Kraft Foods brands from Mondelez Australia in 2017.
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