Fonterra, Nat Foods held talks on Dairy bid: source

MELBOURNE (Reuters) - New Zealand dairy cooperative Fonterra and National Foods have had talks about a possible joint bid for Australia's Dairy Farmers, which is valued at up to A$1 billion ($961.5 million), a source familiar with the situation said on Friday.

Fonterra and dairy and juice producer National Foods, which is owned by Japan's Kirin Holdings (2503.T), declined to comment. Dairy Farmers also declined comment.

In an unsourced report earlier, the Australian Financial Review said Dairy Farmers had consented to allow Fonterra to enter discussions with National Foods and its venture partner Warrnambool Cheese and Butter Ltd (WCB.AX), releasing them from a confidentiality clause imposed on bidders.

"They have had some discussions," a source familiar with the situation told Reuters, speaking on condition of anonymity.

Dairy Farmers, which is owned by some 2,000 Australian farmers and makes Dairy Farmers brand milk, Coon cheese and Ski yoghurt, put itself up for sale in April. Analysts estimate a deal could be worth between A$800 million and A$1 billion.

Fonterra and National Foods have already lodged separate, individual bids for Dairy Farmers, as has Italy's Parmalat

(PLT.MI).

The three firms have also sought regulatory clearance to buy Dairy Farmers.

The competition regulator is due to make its first ruling, on the National Foods and Warrnambool bid, next week. It will rule on the other bidders in subsequent weeks.

However, if two of the bidders were to team up to form a joint bid, the regulator would likely need more time to discuss the implications with suppliers and competitors.

The Australian Financial Review said there was speculation Fonterra had decided to pull out of the bidding for Dairy Farmers, following a deal it made earlier this week to buy Nestle Australia's yoghurt and dairy dessert business.

As part of the deal, the Ski brand of yoghurt which is currently under license to Dairy Farmers reverts to Nestle in 2012, and will then be licensed to Fonterra.

Whether or not National Foods and Fonterra decide to link up to form a consortium for a joint bid, Fonterra's main interest was probably in gaining the Ski license before 2012, the source said.

"Fonterra could achieve its outcomes with a downstream deal for the Ski license as well as by forming a consortium," the source said.

Dairy Farmers has said it will wait for the outcome of the competition regulator's rulings before proceeding to the second stage of the sale process, which is being run by Goldman Sachs.

($1=A$1.05)

(Reporting by Victoria Thieberger, editing by James Thornhill)