New Zealand dairy giant Fonterra has announced that it intends to make an offer for all the shares of Australia's National Foods that it does not already own. Fonterra's cash offer of A$5.45 per share values National Foods at A$1.62bn (US$1.20bn).

Fonterra is currently National Foods' largest shareholder with a 17.2% stake in the company.

"This is our preferred option to achieve our objective for entering the national chilled milk and yoghurts markets in Australia.  These are attractive growth categories, with good growth prospects and solid export potential to Asia.  The business complements our existing strengths in cheese and spreads in Australia," said Fonterra chairman Henry van der Heyden.

However, National Foods announced that its board had resolved to reject the unsolicited offer on the basis that it "significantly undervalues the company given its financial track record and strong earnings prospects".

"Further, the offer takes no account of the substantial strategic and synergy benefits that would be extracted from the acquisition of National Foods by Fonterra," the Australian company added.

National Foods said it is continuing to review strategic alternatives, including a potential merger with compatriot SPC Ardmona.

Fonterra said the offer was an opportunity for National Foods' shareholders to "realise the best value for their shares now, as opposed to being exposed to the significant risks inherent in National Foods' pursuit of transactions outside of its core business, such as any proposed SPC Ardmona merger".

"We believe National Foods' best future lies in a focused dairy consumer business - not by diversifying into non-dairy products which has not proven to be a successful strategy for National Foods in the past," Fonterra's Van der Heyden said.

"Fonterra is interested in National Foods, not SPC Ardmona. Our bid is conditional on any proposed transaction with SPC not proceeding," he added.