RFG mulls spin-off of Dairy Country brand

Retail Food Group is believed to be considering a move to sell off its Dairy Country business separately as Asia-based private equity group PAG remains in negotiations to buy the listed company’s other brands.

Insolvency firm KordaMentha was understood to have been recently hired to assess options for Retail Food Group’s Hudson Pacific bakery business and to examine its balance sheet.

Within the Victoria-based Hudson Pacific is an operation called Dairy Country, which RFG describes as Australia’s largest independent cheese-value-adding enterprise, focusing on high-volume contract conversion, packing and processing.

Apparently, three parties in the dairy industry are in the final stages of a sales process for the operation as RFG assesses whether to part with the business, which is considered lucrative and may net the company tens of millions of dollars.

It comes as the parent company wrestles for survival and after a government inquiry into the industry to lift standards among franchising operations.

Hudson Pacific comprises its food service business and its Bakery Fresh bakery manufacturer as well as Dairy Country.

For the six months to December, Retail Food Group continued in loss-making territory on the back of provisioning, writedowns and non-cash impairments as it
tried to save $20m in annual costs.

Also for sale are RFG’s Crust Pizza, Pizza Capers and Donut King brands, at a time when franchise operations are struggling in a highly competitive market. It is understood PAG remains in talks to buy all three. Earlier suitors were not eager to buy all of the operations together.

Among other brands in its stable are Gloria Jean’s, Brumby’s Bakery, Michel’s Patisserie and Di Bella Coffee.

RFG bought Victoria-based Hudson Pacific — a consumer business that sells products to supermarkets — in 2016 for $88 million.

Now its net debt is $258.9m and after lenders Westpac and the NAB waived covenants, they are now reviewing the company’s position.

One option also on the cards is a recapitalisation after the business performance stabilises or finding different sources of finance, while the banks are also pressuring the company to sell more assets.

Meanwhile, a bid for Lion Drinks and Dairy assets is now off the agenda for Freedom Foods, which used Bank of America Merrill Lynch as an adviser.

Earlier, the group was planning to partner with Coca-Cola Amatil, which was advised by Luminis Partners and UBS to buy the business, but CCA is now out of the race.

It is understood the attraction for Freedom to partner with CCA was that the bottling company has an attractive distribution network and it could also use that network to distribute its UHT milk products.