Coles has entered into a binding agreement to acquire two automated milk processing facilities from Saputo Dairy Australia (SDA) for consideration of approximately $105 million. SDA says it intends to further optimise its operating model by selling its fresh milk manufacturing sites at Laverton North (Victoria) and Erskine Park (NSW).
Each facility has the capacity to process around 225 million litres a year and they are predominantly used today to process Coles Own Brand 2L and 3L milk. The processing facilities are both located close to Coles’ distribution centres.
The transaction is subject to customary conditions, including clearance from the Australian Competition and Consumer Commission (ACCC), and is expected to close in the second half of 2023.
Fresh milk products remain an important part of SDA’s business and as part of the sale agreement with Coles Group Limited, SDA will continue to have fresh milk products processed at the two manufacturing facilities.
SDA says it will work closely with its customers through the transition to ensure these changes have minimal impact and intends for its loyal consumers to continue enjoying its diverse range of dairy products.
There will also be no changes to SDA’s farmer relationships, with suppliers’ milk continuing to be collected and processed throughout Victoria, New South Wales and Tasmania.
Saputo Inc.’s President and COO (International and Europe) Leanne Cutts said the agreement was a proactive measure.
“As the Australian dairy industry landscape continues to evolve, this proactive measure aims to further adapt SDA’s manufacturing network and is designed to strengthen our market competitiveness,”
Saputo Inc.’s Chair of the Board, President and CEO Lino A. Saputo said the company was continually working to ensure it had the right manufacturing footprint and product offering to enhance its position as a high-quality, low-cost processor.
“This marks an important step in executing our long-term vision for success in Australia as we maintain a sharp focus on efficiency to ensure we maximize the return on every litre of milk,” said Saputo.
The milk processing sites employ approximately 48 people. All employees will receive an offer to transfer their employment to Coles Group Limited and SDA says it will work closely with the site teams to support them through this changeover.
Coles and SDA will also enter into customary transitional services arrangements to ensure a smooth handover to Coles. Coles will continue its direct sourcing model and relationships with existing dairy farmers, with no expected impact on current arrangements.
Coles’ CEO Steven Cain said the Saputo facilities were state-of-the-art, delivering exceptional production efficiency and quality through highly automated processes, and that the facilities would complement Coles’ existing investments in its Own and Exclusive brand portfolio and manufacturing capabilities in areas such as convenience meals and meat.
“Whilst improving security of our milk supply and our supply chain resilience in the dairy sector, these facilities also have sufficient capacity to facilitate further growth opportunities through new product innovation.
“The acquisition will build on the strong relationships we have developed with our dairy farmers since launching our direct sourcing model in 2019. Around 90 dairy farmers supply milk direct to Coles, allowing these farmers to invest for the future and ensuring the long-term sustainability of their farms,” said Cain.
Coles Group says the acquisition will be funded from Coles’ existing debt facilities and is expected to exceed its investment return hurdles within three years.
The acquisition of the Saputo sites is subject to ACCC approval and other customary closing conditions and is expected to be completed in 1H FY24.
