China’s Mengniu Dairy is set to make its second major purchase of an Australian food group in 2019, buying Lion Drinks and Dairy from Japan’s Kirin Foods for $600 million.
The purchase follows Mengniu being given the green light last week by the Foreign Investment Review Board for its $1.5bn takeover of Australian infant formula producer Bellamy’s.
Coming before the weekend’s Chinese spying controversy, the Bellamy’s approval sparked some political backlash, with politicians including Barnaby Joyce and Pauline Hanson complaining that key Australian businesses were being sold to Chinese interests.
The news of the sale of Lion comes after The Australian’s DataRoom column reported on November 20 that the Chinese dairy powerhouse was in negotiations to buy the business.
Lion owns juice brands such as Berri, Daily Juice and Mildura, milk brands including Dairy Farmers, Pura and Masters and flavoured milk brands Big M, Dare and Farmers iced coffee, along with Vitasoy products.
It has been on the market for some time.
The sale of Lion to China Mengniu will also be subject to approval by the Foreign Investment Review board and comes after Lion sold its Tasmanian cheese business to Canada’s Saputo in September.
Mengniu Dairy CEO Jeffrey Minfang Lu said the proposed acquisition would deliver significant benefits to Lion’s Drinks and Dairy and Mengniu Dairy, while providing opportunities for Australian dairy farmers, fruit growers and regional communities.
“This acquisition brings together the best of the east and west, harnessing Mengniu Dairy’s networks in existing markets and [Lion] D&D’s leading brands and production capability,” Mr Lu said.
“I truly believe our proposed acquisition will bring tremendous opportunity for the entire Australian dairy sector, opening up a channel to our home market in a very significant way.”
The drinks and dairy business produces, markets and distributes dairy and beverage products in Australia.
Through its international business, it also markets and distributes dairy products in select South East Asian markets and China.
Channel to Asia
Mr Lu said Mengniu Dairy planned to promote the growth of the drinks and dairy business both domestically and in China and South East Asia.
It also hoped to leverage Mengniu Dairy’s distribution networks in Asia, as well as potentially making strategic investments in additional production capacity and capability to drive product innovation and access new markets.
In addition, Mengniu Dairy currently sources certain volumes of milk supply from dairy processors in New Zealand and Europe.
Following the acquisition of drinks and dairy, Mengniu Dairy said it planned to significantly increase its procurement of raw milk from Australian dairy producers.
The acquisition is subject to Australian Competition and Consumer Commission and Foreign Investment Review Board approvals, but is expected to complete in the first half of 2020.
Mengniu Dairy used Macquarie Capital as its financial adviser and Minter Ellison, as legal adviser in relation to the transaction.
It was in the official competition for the business when a sales process was launched by Deutsche Bank and Greenhill about a year ago.
However, Mengniu could not meet Kirin’s expectations on price and the sales process ended without a buyer for the entire portfolio earlier this year.
Saputo then purchased Lion’s cheese business, which includes the South Cape, Tasmanian Heritage, King Island Dairy and Mersey Valley brands, for $280m, leaving the juice, flavoured milk and white milk components unsold.
The original asking price for all the Lion assets on offer was about $1.4bn, according to sources.
But the company in April slashed the value of its Australian dairy and juices portfolio by $530m when offers did not meet expectations
Only months ago, Japan’s Asahi was looking at Lion’s remaining portfolio, but instead bought Carlton United Breweries.
Earlier, Coca-Cola Amatil and Freedom Foods also looked at Lion.
When Lion wrote down its drinks business in April, it blamed the east coast drought that had driven costs higher.
However, the sale comes at a time many believe that consolidation in the drinks industry needs to take place.
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