Saputo swoops again paying $280m for Lion cheese business

Saputo buys King Island brand and other Lion cheese lines


Australian Dairyfarmer News
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Fresh from buying a UK dairy business, Saputo expands its Australian base again - this time in Tasmania.

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In its latest global dairy business expansion push, Canada's big cheese name, Saputo, looks set to pay $280 million for a host of Australian specialty brands, including King Island and Mersey Valley.

Fresh from just buying the Dairy Crest Group in Britain for $1.8 billion, Saputo plans to take over Lion Dairy and Drinks' specialty cheese business, including its manufacturing plants at Burnie and King Island in Tasmania, and two farms.

Saputo is also at the centre of rumours circulating about the future of America's biggest milk processor, Dean Foods, which has been struggling with a falling share price and a general decline in US milk sales.

Six years ago the family-controlled Saputo paid about $2b for Dean Food's Morningstar Foods division, which makes extended shelf-life and cultured dairy products.

Saputo has rapidly grown in the past decade to be one of the world's top 10 dairy processors.

Saputo is ideally positioned to drive the cheese business forward given its deep dairy capabilities, complementary portfolio and commitment to the cheese category domestically - Stuart Irvine, Lion Dairy and Drinks

Following last year's $1.3b takeover of the Murray Goulburn (Devondale) business, it is now Australia's biggest dairy processor, the second largest in Argentina and Canada's largest cheese maker and milk processor.

It is also the third largest cheese business in the US.

Earlier this month it finalised the purchase of the UK's Dairy Crest business which has 1100 employees at seven sites making cheese, butter, spreads and oils under the Cathedral City, Clover, Country Life and Frylight brands.

UK foothold

The Canadian company said its move into the UK secured it a well established and successful industry player with a solid asset base in the market and an opportunity to expand its international presence.

In Australia, the latest deal to buy Lion's premium cheese brands still requires approval from the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

However, given the Lion business has been foreign-owned by Japanese brewing and food giant, Kirin, for the past decade, the sale is expected to go through in the second half of this year, unless competition concerns come to the fore.

Saputo already owns several cheese brands previously sold by Lion for $137.5m in 2015, including Coon, Cracker Barrel and Fred Walker and the Mil Lel continental cheese lines.

Those acquisitions, made by its big Warrnambool Cheese and Butter business in southern Victoria, came just a year after Saputo won a vigorous three-way battle to buy WBC for $530m and gain a foothold in the Australian market.

Premium cheese brands

Lion's specialty cheese business employs about 400 staff and produces, markets and distributes under the South Cape, Tasmanian Heritage, Mersey Valley, King Island Dairy, Heidi Farm and Australian Gold brands.

Apart from its Tasmanian manufacturing sites at Burnie and Loorana, King Island, the Lion sale includes a cheese store and two dairy farms on King Island, "Horizon Glen" and "Kyeema".

The specialty cheese division generated about $192m in revenue in 2018.

Its sale comes eight months after Lion announced it was exiting the dairy industry in Australia with a planned dispersal of its entire dairy and drinks division.

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It has since received offers from domestic and overseas players interested in portions of the operation and the entire business, but the company is yet to say what is happening to its national network of fresh and flavoured milk processing operations, or its yoghurt, cream, dairy dessert or juice businesses.

Stuart Irvine

Stuart Irvine

Lion's chief executive officer, Stuart Irvine, said Saputo was ideally positioned to drive the cheese business forward, given its "deep dairy capabilities, complementary portfolio and commitment to the cheese category domestically".

"When we announced the decision to progress a sale of the dairy and drinks business last year, we made clear our intention to identify the best future ownership arrangements for the business." Mr Irvine said.

"We intended to ensure both dairy and drinks and the Lion businesses were ideally positioned for growth - with the right people, assets and investment behind their respective strategies.

"Over several months, significant bidder interest emerged in both the whole dairy and drinks business and also in the specialty cheese assets on a standalone basis.

"After a careful assessment of all options, Lion entered into an agreement to sell the specialty cheese business to Saputo."

He said various pathways were being considered for the balance of the dairy and drinks portfolio in order to achieve the best possible outcome.

Asset write down

At the same time Kirin and Lion have "recognised a $530m non-cash write down of the carrying value" of the dairy and drinks division, including the cheese business.

This was done as a consequence of extreme weather conditions on the cost and availability of milk in Tasmania, and following discussions with potential bidders.

Lion said the write down would not impact the future underlying performance of the dairy and drinks business.

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