Saputo keen for further acquisitions as dairy industry consolidates

Lion Dairy & Drinks would hand it retail brands such as Big M, Farmers Union, and Dairy Farmers, and other assets in Australia.

Lion Dairy & Drinks would hand it 10 dairy processing plants, retail brands such as Big M, Farmers Union, and Dairy Farmers, and other assets in Australia.

Lino Saputo Jr, chief executive of global dairy group Saputo, Australia’s biggest processor of milk, is incredibly keen to participate in the further consolidation of Australia’s dairy industry and has signalled a willingness to divest some assets to get a deal through competition regulators.

It comes as Canada’s Saputo, which in the past few years has spent more than $1.8bn buying local dairy groups Warrnambool Cheese & Butter and Murray Goulburn, is currently mulling the acquisition of Lion Dairy & Drinks that would hand it 10 dairy processing plants, retail brands such as Big M, Farmers Union, and Dairy Farmers, and other assets in Australia.

That proposed acquisition is currently the subject of an investigation by the Australian Competition and Consumer Commission which is seeking submissions from industry participants.

Addressing investors at Saputo’s second quarter earnings presentation, Mr Saputo Jr did not directly talk about the Lion Dairy & Drinks deal but said he believed despite the dairy processor’s already large footprint in Australia there was still plenty of room to grow via acquisition.

“Australia, there still are pockets of areas where we think there might be opportunity for us to further enhance our platforms that we have there. Our team is so diverse. Our team has been able to navigate through these challenging waters,’’ Mr Saputo Jr said.

He said the bushfires then COVID-19 pandemic had rattled the dairy sector but that Saputo remained in a strong position to grow its base in the region leveraged by its team on the ground.

“First, you have the bushfires, then you’ve got the COVID, then you’ve got the economics, then you got the milk that’s declining, and yet our milk base is growing.

“I’m so proud of our team in Australia, and I think they need to be rewarded by more acquisition. And so if there are files that will allow us to continue to expand in Australia, I think our team there deserves it.”

Lion Dairy & Drinks now looks to be next on Saputo’s hit list, with that acquisition possibly proving a problem for the competition regulator as it would combine Lion Dairy & Drinks and Saputo’s dairy processing plants, their operations that purchase of raw milk from dairy farmers as well as supplying dairy products to retailers.

The ACCC is expected to make an announcement on the proposed acquisition just before Christmas.

Mr Saputo Jr did not reference the Lion Dairy & Drinks assets, but said there was room for Saputo to further grow in Australia despite it being the largest dairy processor. This could include divesting itself of some assets to get an acquisition through the ACCC such as two years ago when it sold the Koroit milk processing facility in Western Victoria to get approval for its purchase of Murray Goulburn.

“I am quite confident that there still is room. Of course, ACCC will have their final stamp on that because we are the largest dairy processor in Australia. But you need to look at it from the different geographies, where we are and where we are not.

“So I think there is room for us to make acquisitions. However, if there are pockets where we would have to consider a Koroit-style remedy, then that’s perhaps something that we would need to do if it would come to that.”

Turning to recent trading in the milk industry, Saputo told investors the milk supply in Australia continued to improve, and the company was on target for its milk intake projections.

The dairy processor said favourable weather conditions have helped increase milk production for the current base of suppliers, there has been increased milk purchases from third-party milk brokers and volumes are performing better than prior year. However, there has been more volumes of lower-margin products sold, particularly on the export side.