Updated: The big debt-laden Murray Goulburn (MG) Co-operative is planning to sell all its operating assets, and operating liabilities, to giant Canadian dairy processor, Saputo, for $1.31 billion.
The deal will require more than 50 per cent of shareholder voting support by active MG suppliers.
It also needs approval of the Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC).
“MG has reached a position where, as an independent company, its debt was simply too high given the significant milk loss,” said chairman, John Spark.
The transaction, which is expected to be concluded in the first half of next year, will include all MG milk supply commitments to active suppliers, for a $114 million price.
MG has also announced its long-suffering suppliers will be now paid a 40 cents a kilogram (milk solids) step up to $5.60/kgMS for the FY18 farmgate milk price from November 1, and backpay, on completion of the transaction, for milk supplied from July to October 2017.
The company, which is holding its annual general meeting today, will also pay a further 40c/kgMS loyalty payment in 2017-18 for its active suppliers.
Unitholders in the Murray Goulburn Trust, which listed on the Australian Securities Exchange just two years ago for $2.10 a share, will be eventually paid $1.10/share.
MG unitholders will receive an initial distribution of 75c/share shortly after the completion of the transaction.
The price is well above this week’s ASX price around 83 cents, but just half the initial value of the units.
Once the transaction is completed, the MG Unit Trust will be delisted.
At the time of its listing, MG was collecting 3.6 billion litres of milk a year and was by far Australia’s biggest milk processor.
Securing a sustainable future for MG’s loyal suppliers is of paramount importance to the board.
Saputo, which won a three-way battle with MG and Bega to buy Warrnambool Cheese and Butter (WCB) in early 2015 for $530 million, will now become the biggest player, gaining almost 2b litres of current MG supply in addition to its existing 1b litres.
Fonterra, which has gained a big number of MG suppliers in the past six months is estimated to be currently handling about 2.5b litres.
MG, founded in 1950 has an extensive brand range, which includes one of Australia’s leading local and export dairy brands, Devondale; export milk brand, Table Cove; 8Bar iced coffee: the lactose-free milk and cream range, Liddells, and nutritional formula brands Proform and NatraStart.
MG chairman, Mr Spark, said his board believed the sale represented the best available outcome for suppliers and investors.
“Saputo is one of the top 10 dairy processors in the world and active in Australia through its ownership of WCB,” he said.
Saputo has demonstrated itself to be a credible and trusted partner for Australian dairy farmers through its investment in WCB.
“This transaction will crystallise real value for MG’s equity, whilst rewarding our loyal suppliers through the milk supply commitments.
“Securing a sustainable future for MG’s loyal suppliers is of paramount importance to the board.
“We are pleased with the strong milk commitments secured as part of Saputo’s offer to reward this loyalty.
“Saputo has demonstrated itself to be a credible and trusted partner for Australian dairy farmers through its investment in WCB.
“The transaction has the unanimous support of the MG board.
Farmer-owned Bega Cheese, which was a popular contender for MG assets, announced late yesterday it was not intending to stay in the race or raise more capital for any acquisitions.
Its chairman Barry Irvin said, however, Bega believed there were a number of potential opportunities in dairy and food.
The former grower co-op was maintaining a strong balance sheet to take advantage of anything arising.
Who is Saputo?
Montreal-based Saputo has also stared down, Fonterra, Goodman Fielder/Wilmar and Parmalat to secure its winning position in the MG takeover.
Saputo is a family-controlled, listed company founded in 1954 as a cheese business, but now making and marketing a full range of products from cheese to milk, cream and cultured products and dairy ingredients.
The company has grown predominantly through mergers and acquisitions, including asset purchases in the US, Argentina, and most recently the WBC deal in Australia..
Saputo is now one of Argentina’s top three dairy processors and the third biggest cheese business in the US.
MG’s Mr Spark said a notice of meeting and explanatory memorandum regarding the sale was due to be released in early 2018.
The documentation would contain information relating to the MG shareholder vote and the Independent Expert’s report on whether the Transaction is in the best interests of MG shareholders; reasons for the Board’s unanimous recommendation; and details of the shareholder meeting.