Australia's competition watchdog has given the National Foods-led bid for Australian cooperative Dairy Farmers approval to progress to the next stage of the sale process.

In March, Dairy Farmers announced that it was putting itself on the block and three potential suitors emerged - two consortiums led by National Foods and Italy's Parmalat, plus New Zealand dairy giant Fonterra

In a statement released today (24 July), the Australian Competition and Consumer Commission (ACCC) said that it will not intervene if the proposal put forward by National Foods and its partner Warrnambool Cheese and Butter Factory were to progress, after National Foods agreed to divest some of its existing dairy assets.

The takeover proposal would see the companies operating Dairy Farmers' cheese business as a joint venture. The two companies would continue to operate their own cheese businesses separately. National Foods would operate the other existing Dairy Farmers businesses.

National Foods, which is owned by Japanese conglomerate Kirin, committed to divest "certain milk processing plants and associated depots and drinking milk distribution contracts in New South Wales and South Australia", the ACCC said.

The company also agreed to license various milk brands in New South Wales, the Australian Capital Territory and South Australia.

These guarantees served to assuage the ACCC's concerns that the proposed acquisition would reduce competition in New South Wales and South Australia. 

"The ACCC is satisfied that the proposed acquisition, subject to the court enforceable undertaking, would be unlikely to substantially lessen competition in the relevant markets," ACCC chairman Graeme Samuel said.

Gaining the ACCC's approval means the National Foods-led bid has successfully cleared the first hurdle in the race to acquire Dairy Farmers. The Fonterra and Parmalat-led bids are still awaiting ACCC clearance and Dairy Farmers has indicated that it will only consider offers that have got the backing of Australia's competition authority.

The ACCC was also due to deliver its verdict on the bid put forward by Parmalat and Murray Goulburn today, however this decision has been delayed until 21 August.

Parmalat and Murray Goulburn have suggested that they split Dairy Farmers in two. One company - to be called Fresh Dairy Co - would merge the fresh milk operations of Dairy Farmers, Parmalat and Murray Goulburn. This group would control around 50% of the country's branded milk sales.

Parmalat would take a 51% stake in the newly-created company and Murray Goulburn would hold the remaining 49%.

A second company, producing non-fresh dairy products, would also be created and Murray Goulburn would own this group.

The ACCC has indicated that it has a number of concerns regarding this proposal and has requested more information from the companies.

The watchdog warned that Parmalat's tender could restrict the supply of fresh milk in Queensland. The ACCC also said that it was concerned that the move would bolster Murray Goulburn's position as Australia's top supplier of long-life milk, adding that this could potentially limit competition in the sector.

When contacted by just-food this morning, Parmalat declined to comment on the ACCC's announcement, as it is an "ongoing process".

The Italian dairy giant added that it remains "optimistic" that it will win ACCC approval.