Bega Cheese acquires Lion Dairy and Drinks for $560 million
Bega Cheese chairman Barry Irvin has confirmed the purchase of Lion Dairy and Drinks, saying it will create significant value for shareholders. See what Bega paid and how they plan to raise the money.
UPDATE: BEGA Cheese plans to raise about $401 million through a share offering to help cover the $560 million it will pay for the Lion Dairy and Drinks business.
The sale is $40 million less than what Chinese suitor China Mengniu Dairy Company offered to pay for the business in November, 2019.
That deal collapsed last August following concerns issued by Federal Treasurer Josh Frydenberg over China’s expansion into Australia’s dairy industry
Bega Cheese went into a trading halt on the Australian Securities Exchange on Monday, ahead of today’s announcement, which was first flagged by Japanese media outlets.
Bega Cheese chairman Barry Irvin said he was delighted with the acquisition, which would create significant value for shareholders.
“The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain,” Mr Irvin said.
“The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.”
Lion Dairy and Drinks holds a swag of well-known retail brands including Pura, Dairy Farmers and Masters in the white milk category; Dare, Farmers Union Iced Coffee and Pura Classic in the flavoured milk category, as well as Vitasoy in the plant milk substitute category.
Lion had previously sold its cheese business to Saputo for $280 million.
Bega Cheese said it would begin a capital raising to help pay for the deal, comprising an institutional placement of $181 million and a 1 for 4.5 pro rata non-renounceable entitlement offer to both existing retail and institutional investors.
The placement and entitlement price would be $4.60 a share, a 9.1 per cent discount to the $5.01 price at the close of trading last Friday.
About 87 million shares would be issued through the capital raising.
The institutional placement is expected to close today, while the entitlement offering opens next Wednesday and closes at 5pm on December 14.
Bega Cheese said the remainder of the capital required to pay Lion would be made through extending its loans from its existing lenders but also taking out new loans.
It will take Bega Cheese’s net debt to $518 million.
Lion Dairy and Drinks had traditionally earned about $1.6 billion a year in revenue from the milk beverages and yoghurt operations.
Earnings before interest, tax, depreciation and amortisation from the business were about $56 million.
Bega Cheese said the deal meant it would own a combined 20 manufacturing plants across all six Australian states and the Australian Capital Territory.
It would boost its milk intake from 955 million litres to 1.7 billion litres and allow its manufacturing and milk collection footprint into “new regions including the strategically important region of Gippsland”.
NSW Farmers dairy committee chairman Colin Thompson said primary producers would be pleased to see Lion return into Australian hands.
“Lion arguably has the biggest domestic retail footprint, so any deal will change not just the NSW dairy sector but the Australian dairy sector,” Mr Thompson said.
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