Canada’s Saputo the likely buyer if Synlait puts New Zealand assets on the block

Late last week, Synlait, which is working with adviser Jarden, told the market it planned to sell its Dairyworks and Talbot Forest Cheese businesses.

Canadian dairy giant Saputo is tipped as the most likely buyer of Synlait’s dairy assets that it told the market were for sale.

New Zealand-based Synlait makes infant formula and milk powders and is listed in Australia and New Zealand.

Its $327m market value is less than the $NZ518.6m ($476m) of net debt it owes its lenders and it has flagged potential losses for the 2023 financial year.

Saputo recently sold assets in Australia, including two factories to supermarket Coles.

Some believe owning assets in NZ would provide a natural hedge for the Canadian dairy giant to the Australian market.

Late last week, Synlait, which is working with adviser Jarden, told the market it planned to sell its Dairyworks and Talbot Forest Cheese businesses. The move is part of a strategy and capital structure refresh by the board, including an asset review.

The company says its “clear competitive advantage” is in its Advanced Nutrition and Foodservice businesses, and it also has a disciplined and well run Ingredients business.

Dairyworks delivers cheese products to various channels under a portfolio of brands such as Alpine, Dairyworks and Rolling Meadow.

Saputo has invested hundreds of millions of dollars expanding into the Australian dairy market, buying up local processors and facilities, but is now reducing its size and scope.

It was seen as a desperate seller of the facilities in Laverton North, Victoria, and Erskine Park in NSW, that Coles snapped up for $105m in April.

Australia has thrown up challenges for Saputo to turn a profit, as has been the case with other dairy groups such as Murray Goulburn, which it purchased, as profit margins are strained.

Saputo’s Australian milk collections have slumped from a forecast 3.1 billion litres to about 2 billion litres as it lost money in the past financial year.

As a result, the national milk pool has lost about 1 billion litres of supply since late 2018, as many farmers leave the industry.

The crisis has paved the way for cheaper NZ dairy imports to flood supermarket shelves, with Woolworths selling Kiwi-branded butter – owned by Chinese dairy giant Yili – and cheese more cheaply than its home brand products made from Australian milk.

Meanwhile, some say nutritional products company Abbottt could eventually buy Synlait’s factory in Pokeno, south of Auckland, even though it is not currently for sale. It produces 1.5 million litres of raw milk daily for skim milk powder and 1.3 million litres for whole milk powder.

Synlait purchased 28 hectares of land in Pokeno in 2018 and said at the time it was planning to invest $NZ260m in the coming years to establish its infant base powder manufacturing capability at the site.

Synlait’s processing plant in Dunsandel, Canterbury, is understood to be its most valuable asset – worth between $NZ400m and $NZ500m.

It collects more than 800 million litres of milk annually and is capable of processing 4.2 million litres of raw milk per day.

The group was founded by director and former chief executive and chairman John Penno, who runs his own plant-based protein start-up, Leaft Foods.

China’s Bright Dairy and Food owns 39 per cent of Synlait and has strong board representation while the Australia and New Zealand-listed A2 Milk owns just under 20 per cent.

The company is under growing threat from a better-performing NZ dairy giant, Fonterra, which is highly focused on its operational performance after selling off non-core assets.

While A2 is a customer of Synlait, its reliance on the business in about five years’ time will be far less after buying its Matura Valley Milk Plant in the South Island about two years ago.