Japan’s Megmilk Snow Brand is firming as the front runner for the dairy assets of Beston Global Food Company as the beleaguered Australian company’s self-imposed deadline for a deal looms.
The Japanese firm already owns several cheese brands in Australia, including Udder Delights based in the Adelaide Hills, for which it paid $14m in 2017, taking on a 90 per cent stake at the time.
Megmilk also owns Unicorn Cheese, Nowra Farmhouse and Flinders Estate, and internationally has a functional foods and infant formula business.
Beston’s lactoferrin business, which it has been developing in recent years and which appears to be the main selling point of any deal, would fit well with that division.
Beston has never turned a profit since listing as a diversified agricultural investor in 2015, and earlier this year told its milk suppliers they would be paid their regular payments in two tranches rather than in full as the company was having cashflow problems.
Those farmers are hoping the company manages to pull off the sale of its last remaining real asset in its South Australian cheese and lactoferrin operations, as without a sale the company’s ability to argue it remains solvent would be under severe pressure.
The company itself said as much last week when, in advising shareholders that its shares would remain suspended from trade, it said “such a transaction is necessary for Beston’s continued financial viability’’.
“The discussions in relation to this proposal are ongoing subject to nondisclosure agreements and are not as yet in a form capable of acceptance,’’ Beston said.
“The board of Beston believes that these discussions, if brought to a satisfactory and material conclusion, will provide the best possible outcome for all stakeholders.’’
Megmilk in August reported a profit of ¥5.27bn ($54.7m) for the quarter, up 46.9 per cent on the previous corresponding period.
Beston has been unable to close off its books for the financial year due to the ongoing deal negotiations, and the impact an outcome either way would have on asset valuations and impairments.
The last time the company reported on its financial position at the end of the third quarter it was carrying almost $70m in debt, with NAB on the hook for about $55m. The bank tried to sell that debt earlier this year but found no takers.
The Australian dairy products sector generally is under pressure, with Rabobank reporting this week that for the first time in more than three years there was deflation in dairy product prices, led by the cheese category.
Maggie Beer Holdings also last week announced it was putting its Paris Creek Farms business in South Australia up for sale after a poor performance, with sales revenue falling 9.5 per cent to $14.7m over the financial year.
Coincidentally Beston owned a 26.5 per cent stake in Paris Creek when it listed, but relinquished its stake and sold Paris Creek a dairy farm in 2017.
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