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Australian regulator has concerns over Saputo dairy deal

Though farmers are in favour of the deal, the competition agency is raising red flags

Australia's competition regulator is raising concerns that Saputo Inc.'s proposed purchase of dairy processor Murray Goulburn Co-Operative could lower competition and dairy prices paid to farmers.

The agency said its concerns focused solely on Murray Goulburn's largest dairy plant in the western Victoria region, where Saputo would control more than two-thirds of the dairy processing capacity from its existing facility and the addition of the Koroit plant.

The only major competitor is Fonterra, which could join Saputo in lowering prices, leaving farmers with no options, it said in a news release on Thursday.

The regulator said dairy farmers wanted the $1.3-billion friendly purchase deal to proceed after years of uncertainty about the future of Murray Goulburn.

However, it believes dairy farmers in the region will be worse off and face lower raw milk prices in the longer term. The regulator said it believed another buyer would step forward if Saputo's acquisition of the facility didn't proceed.

The Australian Competition and Consumer Commission has given the interested parties two weeks to provide reassurances before making a final decision on March 29.

Saputo couldn't be immediately reached for comment.

Analyst Irene Nattel of RBC Capital Markets said Saputo's price commitments to some current Murray Goulburn suppliers for five years didn't appear to sufficiently address the regulator's long-term pricing concerns.

She expected the Montreal-based dairy processor would "vigorously address" the concerns and may extend price commitment to all suppliers in the region for a longer period of time.

It would also likely argue that another buyer wouldn't necessarily offer better long-term pricing, she wrote in a report.

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