Australia's market competition authority said Aug. 8 that it has preliminary concerns regarding Saputo Inc.'s proposed acquisition of Lion Pty. Ltd.'s cheese business and factories in Tasmania.
In April, the Canadian dairy producer agreed to buy Lion Dairy & Drinks' specialty cheese unit and processing plants in Burnie and King Island, along with Lion's cheese brands, for A$280 million in cash.
The Australian Competition and Consumer Commission, or ACCC, said in a statement that it is concerned the deal could lead to dairy farmers in Tasmania being paid less for their raw milk.
"If Saputo acquires the Burnie and King Island Lion plants, we will be left with a structure where two companies, Fonterra and Saputo, buy more than 80% of the raw milk produced in Tasmania," it said.
The ACCC also said the proposed acquisition would consolidate the processing plants of Tasmania's second and third biggest buyers of raw milk, which compete independently against the largest buyer, Fonterra Co-op Group Ltd.
In addition, the regulator said Saputo and Lion's combined market share will be "several times" bigger than the next largest buyer of raw milk, Mondelez International Inc.
The ACCC said it is also taking a look into whether Lion's competitive contract terms with farmers may be lost after the proposed acquisition. The contract ensures better prices for winter milk and an option to fix the price of a percentage of their milk for up to three years, the commission said.
The commission said the proposed acquisition is unlikely to affect the country's supply of cheese.
Lion Dairy & Drinks is a wholly owned unit of Japanese beverage-maker Kirin Holdings Co. Ltd. and produces brands such as South Cape, Tasmanian Heritage, Mersey Valley and King Island Dairy.
Saputo, whose brands include Coon, Sungold and Devondale, produces dairy products in Australia. It has an existing milk processing facility in Smithton, Tasmania.
Both companies did not immediately respond to S&P Global Market Intelligence's requests for comment.