Bega Cheese has announced it will acquire all shares in Lion Dairy & Drinks (LDD) for $560 million. The purchase will be completed by the end of January 2021. The net acquisition price is $534 after a $26 million deduction for IT separation costs.
The binding share sale and purchase agreement will be funded by a combination of new and extended debt facilities and the proceeds from a $401 million underwritten entitlement offer and placement.
Bega Cheese executive chair Barry Irvin said: “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.”
Bega said the combined business is expected to generate more than $3 billion in revenue, with LDD delivering pro forma normalised last 12 months to Sep20 EBITDA of $56 million (post-AASB 16).
It expects base case synergies of $41 million a year mainly from optimising its milk network, indirect procurement, and a corporate reorganisation, and double-digit earnings per share accretion in FY22.
For Bega, the acquisition catapults it into a large-scale dairy and foods business with a significantly expanded domestic distribution network, increased product portfolio and a consumer packaged goods supply chain and organisational capability.
It grows from seven manufacturing facilities to 20, from 10 distribution centres and warehouses to 146. Its core dairy footprint will increase from 955 million litres to 1.7 billion litres while its manufacturing and milk collection footprint will also expand, particularly into the prime Gippsland dairy region.
LDD has Australia’s largest cold chain distribution network supplying food service and convenience stores. It also brings new branded dairy categories to the company, with milk-based beverages, yoghurts, cream and custard.
It has been a walk for LDD to this point. After selling LDD’s speciality cheese portfolio to Saputo for $280 million in October 2019, the proposed $600 million sale of the remaining business to China Mengniu Dairy Company (CMDC) fell through off the back of growing trade tensions and concerns over foreign ownership.
Once Treasurer Josh Frydenberg and the Foreign Investment Review Board wouldn’t give it their blessing, three main parties came a courting. Saputo’s proposal was under review by the Australian Competition and Consumer Commission (ACCC) with its response not expected until 23 December. Private equity firm Tanarra Capital apparently increased its offer late last week, but Bega secured the deal.
CEO Paul van Heerwaarden said: “Bega’s recent company restructure and ERP implementation will allow us to integrate the business and take advantage of the various synergies and growth opportunities across domestic and international markets.”
While the timing of the CMDC collapse worked well for Bega, the acquisition also fits into its Bega 2023 strategy, to achieve 70 per cent branded sales by that date. This fulfils that goal immediately.
LDD’s core business is:
- milk based beverages - Dare, Famers Union, Big M, Masters, Dairy Farmers;
- yoghurt - Yoplait, Farmers Union, Dairy Farmers;
- chilled juices - Juice Brothers, Daily Juice;
- cream and custard - Pura, Dairy Farmers; and
- white milk - Pure, Dairy Farmers, Masters.
It also has three main alliances or joint ventures, one already with Bega through Capitol Chilled Foods, an ACT company that manufactures dairy products in the territory and distributes and sells them under LD&D brands and Canberra Milk brand.
With Sodima it has a licence to manufacture, market and sell Yoplait yoghurts and desserts in Australia and some Southeast Asian markets.
It also has a joint venture company with Vita International Holdings – Vitasoy Australia Products.
Bega Cheese is undertaking an underwritten capital raising to fund the acquisition. The offer price of $4.60 per share to raise roughly $401 million, and issue around 87 million new fully paid ordinary shares. It consists of a $220 million one-for-4.5 pro-rata accelerated non-renounceable entitlement offer, and a $181 million institutional placement.
