WCB to buy Lion cheese

02 Mar, 2015 08:30 AM
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(This will) to increase our presence in the consumer-branded cheese products segment

TROUBLED dairy and beer business Lion is quitting the mainstream cheese market to focus on what it sees as its biggest dairy growth opportunities - high-value milk-based beverages, specialty cheese and yoghurt.

Australia's fourth biggest dairy group Warrnambool Cheese and Butter (WCB) is set to buy the Lion cheese business for about $137.5 million.

The deal covers Lion's leading consumer brands Coon, Cracker Barrel and Fred Walker - originally Kraft brands sold in the 1990s to Dairy Farmers, which was then bought by Lion - and the Mil Lel continental cheese lines.

The sale also includes the cutting, wrapping, distribution, sales and marketing businesses associated with the brands.

Lion's cut and wrap facility is next door to WCB's cheddar plant at Allansford, Victoria where Lion currently manages the packing operations for both businesses, sourcing product from WCB's plant.

Lion still holds a 10.22 per cent in WCB, one of the few significant shareholders to hold on to shares in the hotly contested takeover tussle for the Victorian business last year.

As such, the Lion buyout requires shareholder approval, which Canadian processor Saputo - now the primary WCB shareholder - is recommending.

The cheese business generates annual sales of about $160 million and employs approximately 170 people.

Lion dairy and drinks managing director Peter West said the decision to sell was part of a broader three-year strategy to revive the company's dairy performance and drive sustainable growth.

"We are focusing resources behind our biggest dairy growth opportunities which are in higher-value categories such as milk-based beverages, speciality cheese (including the King Island brand) and yoghurt," he said.

Sale proceeds will be invested behind the turnaround strategy when the acquisition is concluded about May.

The Japanese-owned Lion has struggled with falling dairy profits and milk market share in the past five years.

"Warrnambool Cheese and Butter is ideally placed - with the right assets, business profile and manufacturing footprint - to take over ownership of Australia's leading everyday cheese business," Mr West said.

"We believe this deal appropriately values the business and delivers a win-win for all stakeholders - including our people, the Allansford community, local farmers, customers and consumers.

"We're delighted this agreement secures jobs at the Allansford cut and wrap site, and ensures these iconic cheese brands can continue to be enjoyed."

After winning the battle to snare a prized stake in the Australian dairy market, Canada's Saputo has signalled its determination to keep expanding.

The low-cost family-owned cheese giant gave a strong indication last year that a foothold in New Zealand is also on the company's agenda. After spending 12 years eyeing off WCB, Saputo swooped into the 2013 bidding war between Bega Cheese and Murray Goulburn to eventually pay about $519 million for its 90.1 per cent controlling stake in the Victorian business.

"We have an appetite for growth. We want to grow," said Saputo International chief executive, Lino Saputo (junior) when in Australia in October.

"We're a very focused company and dairy growth is all we know and have been doing for 60 years."

WCB plans to convene a shareholder meeting in late April or early May to consider the transaction.

WCB chief executive David Lord said the transaction would increase the company's presence in the consumer-branded cheese products segment.

Mr Lord will retire in April with Kai Bockman, currently Saputo's president and chief operating officer, set to take his place.

Last month WCB warned suppliers that market returns for its products would remain considerably lower than envisaged earlier in the season.

"We may not see real improvement in commodity prices in the short term, however the continuing weakening of the Australian dollar is likely to have a positive impact," Mr Lord told suppliers on February 2.

WCB is maintaining its supplier milk price at the opening average price of $5.86 a kilogram for milk solids.

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We can only hope that young producers like Geoff Birchnell don't get too disillusioned with the
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Of course Mr Birchnell would sing the praises of Cattle Council and MLA. Compulsory levies
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$1/lt milk's arrival came with a plan to deal with protesting farmers the customer comes 1st