Fonterra's official line may be to not comment on whether it wants to buy Australian company Dairy Farmers, but its business strategy suggests it will be a serious contender.
Australia's third-largest dairy company, Dairy Farmers has confirmed it has started the formal process for a possible sale, merger or joint venture.
Fonterra is Australia's second-largest dairy company, operating 11 plants and processing about 2.1 billion litres of milk, nearly a third of all milk produced on the continent.
Last September, Fonterra's Australia-New Zealand managing director John Doumani said the company was looking for acquisitions to enlarge its business.
In 2006, it bought the small New South Wales fresh milk company Norco, but Fonterra has signalled it needs a significant national player if it is to rapidly increase its market share.
Dairy Farmers, a farmer-owned co-operative handling 1.1 billion litres from 2000 suppliers, could be that company, especially after Fonterra missed out a couple of years ago on buying another large Australian dairy company, National Foods.
Dairy Farmers has turnover of $1.4 billion and is a key player in fresh dairy products cheese, yoghurt and liquid milk, with strength in the key metropolitan areas of Brisbane and Sydney and an estimated 11% of the Australian market.
It would be a perfect fit for Fonterra Australia, which manages the co-op's branded consumer business on both sides of the Tasman.
Dairy Farmers owns the Coon and Cracker Barrel cheese and Ski yoghurt brands.
Fonterra continues to play its cards close to its chest.
"We are not going to comment on this speculation,'' a spokesman said.
"Fonterra is focused on a range of organic growth opportunities in Australia and we will look at any consolidation opportunities that were to come up.''
Dairy Farmers chief executive Rob Gordon said in a statement that the company has had substantial interest from potential buyers.
"Given the high level of interest, the various options that may be put forward and the requirement to obtain necessary regulatory clearances, Dairy Farmers' board will be methodical in its assessment of the available options before it decides upon a recommendation to shareholders.''
Fonterra will face some big guns if it comes down to a bidding war for Dairy Farmers.
National Foods could be a contender as could Nestle, Goodman Fielder, Australia's largest dairy company Murray Goulburn and Italy's Parental.
Dairy Farmers is also performing strongly, with Dow Jones reporting the dairy company has cut costs by more than $40 million, and is on track to post 15% to 25% growth in full year earnings before interest, tax, depreciation and amortisation from $63 million a year ago.