Farmers supplying milk to New Zealand Dairies' South Canterbury factory will make a bid for the plant, which is being sold by its Russian owners.
Sources have revealed potential overseas buyers looked at buying the Studholme plant, but found its five-tonne-an-hour milk drier too small given the sale price being asked by Nutritek Overseas Ltd.
An extra $40 million to $50 million needed to be invested in a second drier to take production to 10 to 12 tonnes an hour, said a source, who asked not to be named.
He said the 40 or so suppliers to the company would make their bid in the coming weeks, offering an undisclosed price but one that reflected the new capital required.
Nutritek chairman Richie Smith confirmed yesterday the Studholme factory no longer met the company' s long-term strategic plan, and it has employed Morgan Stanley to advise on its sale.
Rumours have been circulating for months New Zealand Dairies Ltd (NZDL) was for sale.
After a review of its global operations, Nutritek had decided to focus on the domestic Russian market, Mr Smith said.
The factory processes 200 million litres of milk a year sourced from Timaru to Oamaru to produce 30,000 tonnes of powder and employs 65 people.
There has already been interest in the plant from potential overseas and domestic buyers, and Mr Smith said this was a rare opportunity to invest in an established dairy processing plant.
He expected to know the plant's future in the first half of next year.
Asked about the limitations of its drier, Mr Smith said foundations, boiler capacity and resource consents were all in place for the addition of a second drier.
New milk supply contracts offered by Nutritek have angered and galvanised farmers, according to sources, who believe they were set at a low level to make the business economically attractive to a buyer.
A new buyer would have to secure milk supply as farmers could easily switch to supplying Fonterra, as the price of the co-operative's shares, which they would have to buy, was relatively low, sources say.
Nutritek's investment in NZDL has been strained from the start, even though it bailed out the company, which had been facing insolvency and had a dysfunctional board.
In May 2007, Nutritek invested $24 million to complete construction of the Studholme factory, but that caused board resignations as directors were unhappy at losing control to the Russian company.
It subsequently pumped more money into the company and then last year bought out the remaining minority shareholders.
Nutritek Overseas Ltd owns 89% of NZDL shares, and Cyprus-based Neliec Holdings has the balance.
China's largest dairy company, Inner Mongolia Yili Industrial Group, had looked at buying NZDL, but withdrew several months ago because NZDL was too small.
Sources have revealed Yili came close to making another major investment in New Zealand dairy processing, but pulled out when another New Zealand company offered it long-term milk powder contracts.
Yili Group is one of China's top 520 industrial companies, with annual revenue of more the $US2.2 billion ($NZ3 billion).
It operates 130 dairy factories, primarily supplying the Chinese domestic market.
