Bega buys Lion's Australian dairy business in $560m deal

Bega Cheese executive chairman Barry Irvin says adding a range of popular household dairy names such as Yoplait, Big M and Pura Milk to its books will finally give the business the heft it was seeking in the global food sector.

With Bega announcing the $560 million deal to buy Lion's dairy and drinks business on Thursday, Mr Irvin said the business would now generate about $3 billion in annual revenue, with the company's earnings channels far more diversified once the deal is completed.

Bega CEO Paul van Heerwaarden and Bega Cheese chair Barry Irvin say the deal is a huge step forward for the company. Credit: Morgan Hancock

He added that the deal would also see iconic local brands find their way back to an Australian company.

"It's great to be the company that's acquiring brands that were previously owned by international companies ... and bringing them into Australian hands. I think that's long overdue and needed to happen," Mr Irvin told The Age and The Sydney Morning Herald.

The $1.1 billion ASX-listed company, which still counts the small town of Bega on the NSW lower south coast as its corporate headquarters, will become a food and dairy heavyweight after beating a field that earlier included alternate asset manager Tanarra Capital and international dairy giant Saputo.

The deal adds a wide array of fresh dairy products such as yoghurt and flavoured milk to Bega's existing portfolio of dairy products like cheese and butter, and its big selling grocery items peanut butter and Vegemite. By having more well-known brands and shelf space in supermarkets, the bigger Bega could also now be on a better footing when dealing with supermarkets.

Morgans analyst Belinda Moore said the deal was in line with Bega's strategy of lifting its branded product sales and could give the company more clout with supermarkets.

"You could argue this further cements their relationship with the major supermarkets because the fact is they're going to have a lot more products in store," she said.

Bega's success would not have been possible if not for the federal government's move to reject on national security grounds a $600 million deal between Lion and China Mengniu Dairy for the Lion business, which had been signed last year.

It really strengthens our company and gives us full access to consumers and full access to that great product range. It's a great deal.

Barry Irvin, Bega Cheese executive chairman

The transaction marked a historic moment for Bega, which started life as a farmer co-operative in 1899, Mr Irvin said.

"It's obviously a hugely significant acquisition and a huge step forward for the company in terms of creating that scale-sized branded food company.

"It really strengthens our company and gives us full access to consumers and full access to that great product range. It's a great deal for us," he said.

Bega told the ASX the transaction would deliver annual synergies of at least $41 million, derived from a more efficient milk network and corporate reorganisation.

The headline price for the deal is $560 million, but Bega said the net price of the acquisition is $534 million, when IT separation costs at Lion were excluded.

Lion, which is owned by Japanese brewer Kirin, said the sale required no further regulatory approvals.

"The sale will see Bega, as an established dairy and food company with more than 120 years of heritage, well placed to drive the business forward given its deep dairy capabilities and strong commitment to iconic Australian brands and the local dairy industry," Lion chief executive Stuart Irvine said.

The deal was an important step forward for Lion, enabling continued investment in categories like beer and seltzer, he said. Lion has a large portfolio of beers including XXXX, Tooheys and Little Creatures.

To fund the deal, expected to be completed in January next year, Bega will undertake a capital raising at $4.60 per share, which represents a 9.1 per cent discount to its last traded price.

The capital raising includes an entitlement offer of about $220 million and an institutional placement of about $181 million.

Bega shares remain in a trading halt until Friday.

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