Warrnambool bought for $370.1 million Saputo sees Australia as the ideal launching pad to get into China’s $45 billion a year dairy market
SYDNEY, Australia (Reuters) — Canada’s Saputo Inc. has bought Warrnambool Cheese and Butter Factory Company Holdings Ltd., potentially kick starting a wave of foreign purchases in Australia’s $3.8 billion a year dairy industry.
Canada’s largest dairy producer knocked out a significantly lower bid from Warrnambool’s majority shareholder, fellow Australian company Bega Cheese Ltd., to win approval from the board for its $370.1 million bid.
Australian dairy farmers have been battered in recent years by a powerful combination of factors, including a supermarket price war that slashed domestic wholesale prices, a strong Australian dollar that crimped exports and a drought that sent cattle feed costs soaring.
Read Also
Agriculture ministers commit to enhancing competitiveness
Canadian ag ministers said they want to ensure farmers, ranchers and processors are competitive through ongoing regulatory reform and business risk management programs that work.
There are bright spots on the horizon, including a recent drop in the Australian dollar and rising demand from the Asian middle class. However, many local dairy farmers probably won’t be able to hang on for the good years in the face of well-funded foreign competitors.
“We’ve got significant enquiries … from both major local producers as well as offshore investors looking for exposure to Australian agriculture,” said Jesse Manuel, a rural and agribusiness specialist at Colliers International with a number of dairy farms on its books.
“Those investors are predominantly from Asia including Singapore and China, also New Zealand.”
Saputo, which operates in Canada, the United States and Argentina, has long been looking at Australia as a platform to expand its global presence and tap growing demand in Asia’s emerging markets.
“This is our dream of ultimately having an Australian platform,” said Saputo chief executive officer Lino A. Saputo, Jr. “We believe Australia has the ideal platform for us getting products into those emerging markets.”
Sales of dairy products in China are worth $45 billion a year and are expected to grow rapidly through 2017 to $89 billion, according to a Frost & Sullivan report.
Ray White Rural, an assets agent, recently sent a team to China to meet potential investors in Beijing.
“The biggest interest in rural is in dairy,” said chair Paul White.
He said interest in Australia had been spurred by problems with the supply in China, such as the 2008 tainted milk powder scandal that killed at least six babies and sickened thousands more, and this year’s contamination scare, including an ingredient from New Zealand’s Fonterra.
“Australia is starting to get quite a focus,” he said.
Australia’s largest dairy business, Van Diemen’s Land, said it is in talks with potential investors to raise $180 million. According to local media reports, possible investors include China Investment Corp (CIC), the country’s sovereign wealth fund, and Fonterra.
Analysts consider Van Diemen’s Land a takeover target. It includes several dairy farms in Tasmania and northwestern Australia.
Wahaha, China’s biggest beverage company, said last year that it was looking to buy Australian dairy farms to supply milk powder to China.
Colliers is marketing Raleigh Dairies, which owns two farms on Australia’s east coast, and Lactanz Dairies in Western Australia. Rosmerta, owned by a private New Zealand company, is up for sale after going into receivership.
Saputo made an off-market offer of $7 Aus per share for Warrnambool in an all-cash deal, which the Warrnambool board had recommended shareholders to accept. That was well above a $5.75 per share offer from majority owner Bega Cheese Ltd. in September.
Saputo has a sales office in China and sells dairy products into Japan, Taiwan and South Korea out of its Argentina operations.
Saputo said he expected the company’s planned growth to come from more acquisitions, potentially in Australia.
“Of course, if there are other assets available for sale, we will be part of that process,” he said.
“Our balance sheet is very, very clean, which provides us quite a bit of flexibility for other acquisitions.”
Warrnambool CEO David Lord said the Saputo offer, which represented a 57 percent premium to the one-month volume-weighted average price of Warrnambool shares before Bega’s offer was announced, was far superior to the Bega bid in terms of value and conditionality.
- Company started in Montreal in 1954 with a $500 investment and a bicycle for deliveries.
- For the first quarter of 2014, which ended June 30, the company reported net earnings of $136.7 million.
- Net earnings before interest, income tax, depreciation and amortization (EBITDA) equalled $242.1 million.
- After recent restructuring, Saputo has been divided into three geographic regions: Canada, United States and the international sector.
- Saputo is the largest dairy processor in Canada, third largest in Argentina and among the top three cheese makers in the U.S., not including the latest Warrnambool deal.
