Bega Cheese has made its largest-ever acquisition with a $534 million to buy Kirin brewer’s Lion’s Dairy and Drinks business in Australia.
The deal tops the $460 million Bega paid to buy Vegemite, Peanut Butter, and other brands from Kraft in January 2017.
Bega will fund the Lion deal with a $401 million capital raising and debt which yesterday’s statement says will be around $518 million on a proforma basis.
The $401 million raising consists of a $220 million one for four accelerated non-renounceable offer at $4.60 a share(compared to the $5.60 last sales price a week ago) made up of an institutional component and a retail offer, plus as $181 million institutional placement. The retail offer will start on December 2.
There’s also $267 million of debt from new and existing facilities including a $500 million acquisition facility (which will be repaid via the shareholder raisings and the new debt.
Directors said the deal and the funding model meant no change to Bega’s dividend policy that saw a total of 10 cents a share paid in 2019-20 (down from 11 cents a share the previous year).
The acquisition will see Bega become a $3 billion-plus a year local food giant with its products spanning cheeses, spreads, fresh milk and yoghurt, food distribution networks unequalled by any other producer, and an international presence.
It will become big enough to stand up to the tough negotiating tactics from Coles, Woolies, Aldi, and IGA (Metcash).
It will but well-known milk drink brands such as Pura, Big M, Farmers Union, and Dairy Farmers, yoghurts including names like Yoplait and Farmers Union and juices under the Juice Brothers and Daily Juice labels into its fold.
The deal will also give Bega Australia’s biggest national cold chain distribution network, which includes a vast network of fridges in convenience stores, service stations and elsewhere.
And will also make Bega a substantial presence in the national white fresh milk market for the first time where it will go head to head with the likes of Saputo’s Murray Goulburn.
Bega shares remain suspended while the major part of the fundraising was completed late yesterday. They will resume trading today after closing at $5.60 a week ago ahead of Monday’s halt.
Bega’s executive chair, Barry Irvin, said in yesterday’s statement “we are delighted to announce this acquisition which we believe will create significant value for shareholders. The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain.
“The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.”
In addition to the Lion brands being acquired, a number of other ventures will become investments.
Bega said there’s a venture with Sodima, through a licence to manufacture, market and sell yoghurt and dairy desserts under the Yoplait brand in Australia and in some South East Asian markets; the Vita International Holdings, through the joint venture company called Vitasoy Australia Products Pty Ltd which manufactures, markets and sells plant-based products under the Vitasoy brand; and the longstanding joint venture with Bega Cheese, in relation to Capitol Chilled Foods (Australia), an ACT company that manufactures dairy products in the ACT and distributes and sells those and other products under the LD&D brands and Canberra Milk brand.
Kirin struck a deal in November to sell the business to China Mengniu Dairy for $600 million, but that was blocked by Treasurer Josh Frydenberg amid increasing trade tensions between China and Australia.
Canadian company Saputo was among bidders for Lion Dairy but dropped out of the race, leaving Bega in the best position to complete the deal at a cheaper price.