Melbourne, March 4 - Australian dairy and juice producer National Foods, owned by top Japanese brewer Kirin Holdings, is interested in making a bid for milk and cheese producer Dairy Farmers, a source said on Tuesday.
Dairy Farmers put itself up for sale last month and said it has had substantial interest in a deal that could be worth up to A$1.0 billion ($940 million).
National Foods, bought by Kirin last November for A$2.8 billion, is one of Australia's largest food groups with brands including Pura milk, Big M flavoured milk and Yoplait yoghurt.
"Whether National Foods could pull enough synergies out to justify a premium price would be an issue," a source familiar with the situation told Reuters.
The firm previously made a bid for Dairy Farmers in 2000 for A$793 million that was rejected.
Other potential bidders include New Zealand unlisted dairy giant Fonterra, Italy's Parmalat, Australian food group Goodman Fielder and Singapore's Olam International, according to analysts.
National Foods is being advised by Macquarie Bank and Dairy Farmers has hired Goldman Sachs JB Were.
Dairy Farmers, which makes Dairy Farmers brand milk, Coon cheese and Ski yoghurt and is owned by some 2,000 farmers, kicked off the sale process this month.
The group is believed to want indicative bids for the business before allowing suitors to examine its books, he said.
A second source, who asked not to be named, confirmed the details of the sale process.
Dairy Farmers, a farmers' cooperative formed in 1900 and based in New South Wales state, has long been considered likely to take part in a rationalisation of the sector because of the cost savings it could offer other large dairy players.
Italy's Parmalat unit, which owns the Pauls dairy brand, has about 350 farmer suppliers in Queensland state, while Goodman Fielder does not have any Australian dairy businesses but owns several New Zealand dairy brands.
Dairy Farmers expects a 15-25 percent increase in earnings in 2008, implying A$66-71 million. One analyst said a sale multiple of 9 to 11 times earnings or A$600-A$800 million was realistic.
Goodman Fielder Chief Executive Peter Margin said his company could run Dairy Farmers better than the present owners and make more money out of products such as yoghurt, but he would not overpay for assets.
"Clearly Dairy Farmers is of strategic value to us but we're reasonably pragmatic," Margin said on Feb. 26 when announcing first-half results.
Dairy Farmers and Parmalat were not available for comment.