‘One way traffic’: Why Australia’s food giants keep ending up in foreign hands

Veteran fund manager John Sevior remembers a time when the Australian stock exchange was filled with more major food and beverage companies – big businesses that owned household brand names.

“It really has changed,” the star stockpicker from Airlie Funds Management tells The Sydney Morning Herald and The Age. “And there are lots of little metaphors; the Arnott’s one, the Foster’s one.”

Cooke Inc was determined not to let Tassal Group slip through its takeover net.Credit: Bloomberg

Sevior is referring to the 1997 takeover of Arnott’s, the company behind Tim Tams and Saos, by US multinational Campbell’s Soup, which at the time caused a near national outcry.

Since then, a string of major ASX-listed food and beverage companies have ended up sold to foreign interests (and thus have left the exchange), including brewing giant Foster’s, bread manufacturer Goodman Fielder. Other well-known Australian owned brands, like breakfast cereal producer Uncle Toby’s and drinks maker Golden Circle, have also ended up in offshore ownership.

This week, another entry was added to the list as ASX-listed Tasmanian salmon producer Tassal agreed to be acquired for $1 billion by Canadian seafood giant Cooke. “This is just part of a long-running global consolidation that’s been pretty much one way traffic for 30 years,” Sevior says.

For the average retail investor in Australia, the decades-long trend means it’s become harder to get exposure to a sector that is not only a big part of everyday life, but which also represents a decent chunk of the economy.

Tassal’s takeover by Canadian seafood giant Cooke means all three of Australia’s biggest salmon growers will have fallen to foreign ownership.

Tassal’s acquisition was “very opportune” for Cooke, according to investor and East 72 Holdings executive director Andrew Brown. But Brown believes Tassal shareholders are getting a raw deal, given the company’s potential long-term growth. “If we’re going to trade our ownership in these companies, then we want to be compensated for that,” Brown said.

Australia is a global heavyweight when it comes to exporting food – but we only have a handful of globally significant food or beverage companies. Many companies that look like they might be on that path don’t stay Australian for long. Which, for investors like Brown, is disappointing.

“Whether we’re talking animals, seafood, wheat grains, or ... dairy, et cetera, for a country that’s got a pretty massive competitive advantage in actually growing this stuff, the investor’s got very, very few ways of participating in this industry at all,” said Brown.

Arnott’s, the company behind Tim Tams, was taken over by US multinational Campbell’s Soup in the 1990s.Credit: Natalie Boog

“When we do get them, they tend to get taken over.”

Small fish in a big pond

One factor behind this dynamic is the fact that our export prowess in food is mainly in the form of raw agricultural commodities rather than in processed or “value-added” products.

Australia’s small population is another inhibiting factor: while we have the landmass to grow food in abundance, 25 million mouths is not that many when compared, for instance, to neighbouring Indonesia that has a population of over 273 million.

Airlie Funds Management founder John Sevior.Credit: Rob Homer

“In processed food and in branded food, honestly, we don’t have big brands here that are of global significance,” Brown said. “We tend, obviously because of the size of our domestic market, not to have economies of scale.”

This, married to our proximity to Asia, makes Australian companies appear very attractive to global players that want to target the massive Asian market, he added.

Scale comes up again with Sevior, who says it counts in a “global game” like manufacturing. “I think Australia has brands with some intangible value, but the companies hadn’t built a big enough manufacturing base to be competitive globally,” he said.

“They didn’t really have the firepower or maybe the ambition to compete globally ... Your cost of production is never going to match.”

Shouldn’t we be concerned about the number of Australian food and beverage companies that have ended up in foreign hands?

Sevior says there is perhaps some patriotism behind those sentiments, and doesn’t believe foreign ownership is necessarily detrimental to Australian economy or market, though he acknowledged concerns about food security. Realistically, however, an Australian shopping basket today probably contains many more smaller-scale ‘boutique’ brands that are local amid a long-term shift towards health and well-being.

“At a local level, with the paddock to plate movement, people [are] just being a lot more discerning,” he said. “The largest question is how important are some of these brands, how relevant are they are in people’s diets, compared to what it might have been 10 or 20 years ago.”

As a result, Australian food giants – while they may have market dominance and long-time brand recognition – may be in “a sort of sunset phase,” Sevior says.

“There hasn’t been a lot of market capital to invest in large food and beverage companies in Australia for a long time.”

Who’s next?

Currently, only a handful of sizeable Australian food and beverage companies remain on the ASX200, including poultry player Ingham’s, Bega Cheese, which in addition to dairy products owns Vegemite, and Penfolds owner Treasury Wine Estates.

Brown wouldn’t be surprised if a takeover bid emerges for Bega or United Malt, the world’s fourth-largest barley malt supplier to the distilling and brewing industry.

ASX-listed barley malt seller United Malt may be on the takeover menu.Credit: Bloomberg

“This is very much a personal opinion: I think [United Malt] is an absolute, in the sight, bull’s eye, corporate target,” Brown said. He also noted that mining magnate Andrew ‘Twiggy’ Forrest, who rescued boot maker R.M. Williams, has recently been increasing his stake in Bega.

Meanwhile, Treasury, which has a market value of around $10 billion, is one of the rare examples of an Australian company that’s found global success. Brown describes the company as the “pinnacle of Australia’s wine industry”, but even the world’s biggest listed wine business isn’t immune from the threat of a takeover.

“Treasury’s not bulletproof in terms of a takeover but certainly the way it’s managed to recover from the Chinese embargo is pretty spectacular, so I think it’s not taken itself out of takeover range, but certainly it would be a fairly big gulp for anybody to do,” he said.

Treasury was itself a spin-off from Melbourne-born Foster’s Group. And CEO Tim Ford seems determined to keep the company Australian.

“We’ve planned to be the world’s largest luxury premium wine business and there’s nothing to suggest we can’t achieve that as a long term. Now, if you’re a public company, I guess at any point in time someone would look to acquire us then that is their option to try and do that,” Ford told the Herald and The Age.

“However, I think at this stage we will be a very strong Australian-based, Australian listed company for a long time to come.”

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