TPG in mix for Lion acquisition

TPG also explored a possible purchase of at least part of the Murray Goulburn dairy co-operative around the time it was up for sale.

TPG Capital is believed to have entered the contest to buy Lion Drinks and Dairy, joining other private equity rivals also in talks about an acquisition of the assets.

It is understood that TPG also explored a possible purchase of at least part of the Murray Goulburn dairy co-operative around the time it was up for sale, with the Koroit milk processing facility possibly on its radar.

TPG’s Australian rival Pacific Equity Partners is also understood to have revived its pursuit of Lion’s assets, after earlier circling, while BGH Capital and Affinity Equity Partners may also be in the mix.

China’s Mengniu is expected to be out of the competition after the Victoria-based Burra Foods owner made a left-of-field takeover bid for the listed Bellamy’s Australia, promising to buy the company for $1.5bn, a 59 per cent premium to its last traded share price.

However, some of the best brains in the dairy and food processing industry are scratching their heads over how a buyout fund could make an acquisition of the Australian Lion drinks and dairy assets stack up, as the country’s drought continues to weigh on the bottom line of the business.

Buyout funds are typically deterred by firms with volatile earnings and weather risk, but an attractive price tag in this instance could be the drawcard.

A sale process for Lion’s Australian assets via Deutsche Bank and Greenhill ended earlier this year without a sale of the entire portfolio, and instead, Saputo purchased the cheese division for $280m, gaining labels like King Island Dairy and Tasmanian Heritage.

Japan’s Kirin, which owns Lion, was to sell the remaining juice, flavoured milk and white milk operations to its fellow countryman Asahi Group, but Asahi instead outlaid $16bn buying Carlton and United Breweries and walked away from Lion. Now it is understood talks with possible buyers continue.

The initial asking price for the entire portfolio was understood to be $1.4bn before the company wrote down the value of the Australian dairy and juices portfolio by $530m, blaming the drought and higher costs.

When it comes to white milk, Lion is forced to face off with supermarkets that drive down prices, and it is considered a low margin business.

No doubt persisting drought will be taking a further toll. However, seasonality has not deterred Mengniu from spending in the dairy industry.

Its proposed acquisition of the Tasmania-based infant producer Bellamy’s came after four months of talks and came with advice from HSBC’s Roshan Menon and law firm Norton Rose Fulbright.

Morgan Stanley’s Luke Boeg and law firm Allens are representing the interests of Bellamy’s, along with independent adviser Matthew Hanning. HSBC is understood to be funding the Bellamy’s acquisition for Mengniu.