Canada’s biggest cheese producer, Saputo Inc., announced that it has entered into an agreement to acquire Murray Goulburn – the second largest dairy processor in Australia for A$1.31 billion (C$1.29 billion US$990 million).
The deal gives Saputo all of Murray Goulburn’s production assets, which will be added to the Warrnambool Cheese and Butter (WCB) assets and brands that Saputo acquired across two deals in 2014 and 2017, placing a value on the company of $682 million.
Murray Goulburn has experienced a difficult 18 months after cutting milk prices and seeing intake levels plummet, while experiencing public relations difficulties as well. Craig Dwyer, former director of Murray Goulburn, and Chief Executive Ari Mervis reportedly approached Australia’s Deputy Prime Minister Barnaby Joyce about securing a short term loan to float the cooperative as it tried to rectify its issues; however those talks stalled.
“The outcomes of that conversation [with government] were that it is not an industry problem but an MG one, so it was suggested that we needed to find a commercial resolution,” Dwyer said, according to the Australian Financial Review.
Murray Goulburn produces a full line of dairy products including drinking milk, milk powder, cheese, butter, dairy-based beverages, ingredients, and infant formula. The group has 2,550 employees and 11 manufacturing facilities located across Australia and China. For the 12-month period ending June 30 of this year, the company saw revenue of approximately C$2.5 billion (US$1.95 billion) earnings before interest, tax, depreciation, and amortization (EBITDA).
Industry insiders see the addition of Murray Goulburn as high synergistic and complementary for Saputo, as well as strengthening its position in the Australian dairy sector.
“Saputo will achieve substantial synergies from merging MG with WCB and its existing global operations,” Morgans analyst Belinda Moore said in a note, reports Reuters, while Bloomberg reports that Michael Van Aelst, an analyst with TD Securities, stated in a research note, that the deal “is a strategic acquisition for Saputo, adding sizeable scale, strong domestic brands, and a robust Asia export presence to Saputo’s already attractive Australian operations.”
Moving forward, Saputo will collect milk from Murray Goulburn’s suppliers for a five-year period from the FY19 season, on equal or greater terms to Murray Goulburn’s existing terms. Following that time frame, Saputo will continue to collect milk at “reasonable terms”.
“We intend to continue to pay leading competitive milk prices to farmer suppliers in Australia so they can reinvest and grow their businesses,” Lino Saputo Jr, Saputo’s chairman and CEO, said.
Saputo has successfully beat out a field of rivals for Murray Goulburn, including Inner Mongolia Yili Industrial Group, Kirin Holdings Co, China Mengniu Dairy Co, and New Zealand’s Fonterra, which confirmed early in October that it had made a bid for the co-op.
The undisclosed bid by Fonterra came on the same day that the company released its full-year results, which included a 12 percent increase in revenue year-on-year to US$15.52 billion.
Fonterra has been increasing its share of the Australian dairy supply market in recent years, and since 2015 has unseated Murray Goulburn as the largest dairy processor in Australia. Since then, Fonterra Australia has raised its milk collection volumes to more than 2 billion liters per year, while over the same time Murray Goulburn has seen its collections drop from 3 billion liters to 2 billion liters per year. And indeed, this is a trajectory that doesn’t look to slow in the near future, with Fonterra Australia’s seven processing sites across Tasmania and Victoria operating at full capacity, with farmers on a waiting list to supply milk to the company.
“We’ve got a business that is in good shape. We have made some tough calls, divested the things that didn’t work for us and now we are able to pay a competitive milk price to our farmers,” Rene Dedoncker, managing director of Fonterra Australia at the time, told The Australian. “We are now looking to build on that base with expansion linked to growing customer demand for consumer dairy, food service products and dairy ingredients…,” indicating Fonterra’s plans to continue to seek out strategic growth.
Saputo also declared that it is positioned to continue to invest in its Australian platform while it also focuses on developing both its domestic and international businesses. The company accounts for one third of the cheese produced in Canada and has an extensive presence in the U.S., along with facilities in Australia and Argentina. Since going public in 1997, the company has rapidly pursued global expansion through 25 acquisitions valued at $5 billion if including the Murray Goulburn deal, which remains subject to approval from Australia’s Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission.
-Lynda Kiernan