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Thursday 14

December, 2017 3:11 PM



Murray Goulburn gone to Saputo for $1.3b

Murray Goulburn gone to Saputo for $1.3b

Canadian dairy giant Saputo, which already owns Warrnambool Cheese & Butter, is set to add Murray Goulburn to its suite of Australian dairy assets.

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By AAP 27.10.2017 05:07 PM

Another Australian dairy processor is set to fall into foreign hands, with Canadian dairy giant Saputo set to buy Murray Goulburn in a $1.3 billion deal forced by the local firm's mounting debts and failure to secure enough milk supply.

Murray Goulburn chairman John Spark says the sale to Saputo is the dairy co-operative's best option, with its situation worsened by an inability to pay a high enough milk price to keep suppliers on board.

"MG has reached a position where, as an independent company, its debt was simply too high given the significant milk loss," Mr Spark said on Friday.

The deal concludes a strategic review process begun in July, that resulted in a number of proposals from other dairy processors, including Bega Cheese.

Murray Goulburn chief executive Ari Mervis, facing surprised and angry dairy farmer-shareholders at the co-op's annual general meeting on Friday, agreed that the deal was "perhaps not a universally popular outcome".

He said the board had tried to save Murray Goulburn.

"The reality is that when you've got half the milk that you had two years ago, it's very difficult if you've got the same debt level and the same operating costs," Mr Mervis said.

Suppliers have been leaving Murray Goulburn ever since the debt-laden processor slashed the prices it was paying for milk in April, 2016, and introduced a deeply unpopular support scheme that required farmers to repay loans made to compensate for the price cut.

The co-op dropped the support scheme, shut down three plants and cut 360 jobs in May, 2017, in moves to restructure its finances, but the farmer exodus continued.

Dairy farmers will receive a boost to the price paid for their milk as part of Murray Goulburn's agreement to sell to Saputo, which in 2014 took control of Australian dairy processor Warrnambool Cheese & Butter.

Mr Spark pointed to Saputo's local presence via Warrnambool as a factor in Murray Goulburn's support for the deal.

"Saputo is one of the top 10 dairy processors in the world," he said.

The $1.31 billion deal, which is unanimously supported by the Murray Goulburn board, includes the co-op's operating assets and operating liabilities.

The deal requires approval by shareholders, the Australian Competition and Consumer Commission and the Foreign Investments Review Board.

Dairy farmer Brian Fehring of Cohuna in northern Victoria, who said he has been a dairy farmer all his life, said the sale of Murray Goulburn could destroy the little confidence that many dairy framers retain in the dairy industry.

"A lot of the old loyal ones (dairy farmers) will be broken-hearted and say 'I've had enough of this - I'm walking out'," Mr Fehring told AAP.

Morgans senior analyst Belinda Moore said in a research note the deal was "extremely disappointing" for unitholders in the ASX-listed MG Unit Trust.

Ms Moore said shareholders and unitholders were largely receiving less than they originally paid for their stake in the co-op.

"However, we also recognise that MG's bargaining position was low given its financial status and severe market share loss, which would likely have only got worse given it is not in a position to pay a competitive farmgate milk price," she said.

Murray Goulburn unit trust units were one cent lower at 82 cents on Friday.

POURING OVER THE DETAILS: MG'S SAPUTO DEAL

* 40 cent increase in the price Murray Goulburn pays farmers for their milk, to $5.60 per kilogram of milk solids for milk supplied from November 1, 2017, and upon completion of the transaction, for milk supplied from July to October 2017.

* Murray Goulburn suppliers to get an extra 40 cents per kilogram/solids loyalty payment in 2017/18.

* Active Murray Goulburn suppliers will receive commitments from Saputo enusring milk collection and market pricing.

* Murray Goulburn will retain all assets and liabilities associated with its listed entity, the MG Unit Trust; and any liabilities arising from proceedings with the Australian Competition and Consumer Commission, an investigation by the Australian Securities and Investments Commission, and a unitholder class action.

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