Murray Goulburn enters binding agreement to sell to Saputo for $A1.3 billion

Murray Goulburn Cooperative, Australia's largest milk processor, has entered a binding agreement to sell all its operating assets and liabilities to Canada's Saputo for A$1.31 billion, it told shareholders at their annual meeting in Melbourne today.

"The transaction has the full support of the board, including supplier directors, who believe that the Saputo transaction represents the best available outcome for our suppliers and our investors, providing real value for shareholders and rewarding our loyal suppliers through the milk supply commitments," it said.

The deal requires shareholder and foreign investment board approval as well as clearance by the Australian Competition and Consumer Commission. Saputo said in a statement that the purchase price will be financed through a newly committed bank loan. The transaction is expected to close in the first half of calendar 2018.

Fonterra Co-operative Group says it had put forward a proposal focused on farmers and building the Australian industry but it was never part of the formal strategic review process run by Deutsche Bank.

"Our proposal required direct input from Murray Goulburn’s board, an opportunity we did not get," Fonterra Australia managing director Rene Dedoncker says today.

He says the decision to go with Saputo comes as no surprise and doesn't change the growth plans for Fonterra in Australia, which has finally turned around after years of making losses.

"We have set our sights on growth, and we are accelerating our capital investment plans to grow our milk supply and processing capacity."

Fonterra will be roughly equal with Murray Goulburn this season in terms of milk collection with its volumes growing to 2 billion litres from 1.6 billion last season, in a market characterised by a shortage of milk and too much processing capacity.

Saputo says the acquisition of Murray Goulburn will "add to complement" its dairy division's activities.

"By acquiring a well-established industry player, the company reinforces its commitment to strengthen its presence in the Australian market. Saputo intends to continue to invest in its Australian platform and contribute to the development of its domestic and international business."

In 2014 Saputo acquired a controlling stake in Victoria dairy producer Warrnambool Cheese and Butter and by 2017 held all remaining shares.

The nitty gritty
The agreement with Murray Goulburn includes a series of commitments from Saputo ensuring milk collection and market pricing into the future, the Australian dairy company said. For its part, Murray Goulburn will increase its 2018 milk payout by 40Ac to $A5.60 per kilogram of milk solids supplied from November 1. Active MG suppliers will receive a 40Ac/kg of milk solids retrospective backpay amount in respect of all qualifying milk solids supplied between July 1 and October 31, it said.

Murray Goulburn's prior forecast payment for the current season at $A5.20 per kilogram of milk solids was below the forecast payouts of rivals, including Fonterra and Saputo's Warrnambool and Bega Cheese.

Active MG Suppliers will also receive a loyalty payment of 40Ac/kg of milk solids for all milk supplied in 2018, subject to completion of the transaction, it said.

The estimated net value per unit is $A1.10-1.15 after working capital adjustment and other costs, it said. MG Unit Trust rose 7.2% to 89Ac on the ASX. The company also said the estimated initial distribution would be approximately 75Ac per unit to be paid shortly after completion.

Murray Goulburn will retain all assets and liabilities associated with the MG Unit Trust and any liability in relation to the current ACCC proceedings, ASIC investigation and unit holder class action, which is why it will retain part of the proceeds of the transaction until those matters are concluded.

In April, the ACCC filed Federal Court proceedings against Murray Goulburn for breaching Australian consumer law. An investigation was launched when Murray Goulburn abruptly slashed its forecast payout for its farmer shareholders in April last year and the ACCC alleges Murray Goulburn "engaged in unconscionable conduct and made false or misleading representations. "

Murray Goulburn announced a strategic review in June after last year's slump in global milk prices wrong-footed the dairy cooperative. At the time it said the review would look at all aspects of MG's strategy and corporate structure, including the profit sharing mechanism and capital structure and Deutsche Bank, which was advising the cooperative, then said received a number of confidential unsolicited proposals including full takeover from third parties.

Australian dairy company Bega Cheese announced last night it was not one of the bidders after media speculation it was a frontrunner along with Saputo.

(BusinessDesk)