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Tara Dairies is conducting talks to find a potential partner, announced Tovah Avrech, the chairwoman of Tara's management committee, to representatives of the 33 families that jointly own the Tara Cooperative Society.

Tara is the country's third largest dairy, but is finding it difficult to expand its market share due to its ownership structure, and its technological and marketing lag behind competitors Tnuva and Strauss. The two larger dairies have invested hundreds of millions in the last two years in building advanced dairies, and it is likely that the introduction of a strategic investor into Tara will allow the shareholders who wish to exit to cash out their holdings.

Tara's management committee refused to comment on the announcement.

Sources in the industry say that Tara is negotiating with the Central Bottling Company (Coca-Cola Israel). In the U.S., Coca-Cola launched a new milk-based drink in cans in the fall of 2003, in an attempt to move ahead in the health food field. The new drink, named Swerve, contains 50 percent milk flavored with chocolate, coffee or other flavors.

A partnership with Tara will allow Coca-Cola to manufacture these drinks in Israel. In the past, Prigat, a subsidiary of the Central Bottling Company conducted negotiations with Tnuva over a joint venture to market milk beverages with fruit flavorings.

Recently Tnuva's CEO, Arik Reichman, announced that the dairy does not intend to enter the fruit-based milk market.Strauss has bought 20 percent of Ganir - through its Yotvata subsidiary - which specializes in fruit-based drinks and syrups.

Coca-Cola Israel responded: "As the leading company in the Israeli beverage industry, we are of course examining a number of new areas that we might possibly enter. Nevertheless, we cannot comment on every rumor or item about our business plans."

In the past few months, Tara's management committee has been studying ways to transform it into a corporation, and one option raised was issuing Tara on the stock market.

The last purchase proposal received by Tara was for NIS 220 million in 2001, representing half of its annual sales at the time. The Geyer group, a real estate group made the offer. Tara was valued at $58 million at the beginning of 2002.

The society's primary assets are the Tara dairy on Yigal Alon Street in Tel Aviv, and four distribution centers in Be'er Sheva, Haifa, Jerusalem and Rishon Letzion.

Several buyers have been interested in Tara for its real estate properties. Tara also owns a third of the Golan Heights Dairy, which is owned in equal amounts by Tara, Strauss and Tnuva.

Sources close to Tara say that the management does not intend to sell all of the dairy at the present time.