Saputo cleared by ACCC to buy Lion’s Tasmanian cheese business

Canada’s Saputo to tighten grip on the dairy sector, as ACCC waves through takeover of Lion’s cheese business.

A Lion specialty cheese project in Burnie. Picture: Chris Kidd

Saputo will strengthen its grip on the nation’s dairy sector after the competition regulator announced it will not oppose the Canadian giant’s proposed $280 million acquisition of Lion Dairy & Drinks’ Tasmanian-based cheese business.

The Australian Competition and Consumer Commission said it did not think the acquisition was likely to substantially lessen competition, but warned further consolidation would cause “significant concern”.

The deal still awaits Foreign Investment Review Board approval.

Saputo and Lion earlier this year unveiled a deal to acquire Lion’s Tasmanian cheese processing plants in Burnie and King Island, and Lion’s cheese brands, including South Cape, King Island Dairy and Tasmanian Heritage.

There were initial concerns about the impact the acquisition would have on Tasmanian dairy farmers and in particular on milk prices, with the ACCC raising concerns it could lower the price Tasmanian farmers received.

The acquisition would combine the state’s second and third biggest buyers of raw milk from Tasmanian dairy producers.

The ACCC’s investigation included a detailed examination of the impact the deal would have on competition for the acquisition of raw milk.

“We looked very closely at the transaction because it will combine the processing plants of the second and third biggest raw milk buyers in Tasmania. We spoke with many farmers and other interested parties,” ACCC Deputy Chair Mick Keogh said in an announcement approving the deal.

Fonterra is the largest buyer of raw milk and Saputo’s closest competitor in Tasmania. Other processors include Mondelez-Cadbury, Lactalis-Parmalat and a small fresh-milk plant in Hobart that Lion will retain.

“Some farmers told us that Lion has been offering competitive contract terms and they were concerned these would be lost after the proposed acquisition,” Mr Keogh said.

“However, most farmers were not concerned about the transaction, and told us the remaining milk processors will keep price and non-price terms competitive. Many farmers expressed strong support for Saputo’s investment in cheese production in Tasmania.

“Ultimately, and on balance, we do not think this acquisition is likely to have the effect of substantially lessening competition.

“However, the ACCC acknowledges that there is a significant degree of concentration in the Tasmanian dairy sector. Any further consolidation of dairy processors would cause significant concern,” Mr Keogh said.

The ACCC also examined the impact of the proposed acquisition on the supply of cheese in Australia.

Saputo’s cheese brands include Coon, Sungold and Devondale and Lion’s cheese brands include South Cape, King Island Dairy and Tasmanian Heritage.

The ACCC determined that the proposed acquisition is unlikely to substantially lessen competition in the supply of cheese.

“Lion focuses on premium speciality cheeses and Saputo focuses on everyday cheeses. We considered that a combined Saputo-Lion would face continued competition from domestic cheese producers, supermarket private labels, and cheese importers,” Mr Keogh said.

Lion is also currently exploring the sale of its dairy and drinks business.

Lino Saputo, Jr, chair and CEO of Saputo, welcomed the ACCC’s ruling.

“We are very pleased with the ACCC’s decision. This is an important milestone in the process of completing this acquisition, which is expected to occur by the end of calendar year 2019.

“We now await the Foreign Investment Review Board’s (FIRB) decision. We remain committed to developing mutually beneficial relationships with our Australian stakeholders and our goal is to continue to do so with the addition of the specialty cheese business.”