Carrie LaFrenz
October 27 2017
AFR
After months of uncertainty Murray Goulburn Co-operative has sold all its operating assets and liabilities to Canada’s Saputo Inc in a $1.31 billion deal, which includes an increased farm gate milk price and and loyalty payment to farmer suppliers.
The deal also assures farmers a series of commitments from Saputo ensuring milk collection and market pricing into the future.
Saputo beat rivals Bega Cheese, Fonterra, Goodman Fielder/Wilmar and Parmalat to secure a deal.
Murray Goulburn is on its way to losing its mantle as the nation’s biggest milk processor this year, as it was forced to slash costs as its revenue tumbles amid an exodus of farmers.
In August, it received a number of confidential, non-binding and indicative proposals from third parties keen on taking over the company.
While no formal earnings guidance was given at the time, it said it expected milk intake for the year to be at about 2 billion litres, 27 per cent lower than 2017.
Murray Goulburn chairman John Spark said on Friday that Murray Goulburn’s debt was simply too high given the significant milk loss, and the board believed that the transaction with Saputo Australia represents the best available outcome for suppliers and investors.
“Saputo is one of the top ten dairy processors in the world and active in Australia through its ownership of Warrnambool Cheese & Butter (WCB),” he said in a statement to the ASX.
“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.”
The farmer shareholders upon completion of deal will own the cash paid for the assets of Murray Goulburn.
Under the new owners, Murray Goulburn will be converted from three classes of shareholders – two classes of farmer shareholders (wet who have voting rights and dry with no voting rights), and unit trust holders of the listed entity – to one class of shareholder.
Combining all shareholders equivalent holdings, this takes the possible equity value of Murray Goulburn up to to $638 million.
The deal includes Murray Goulburn milk supply commitments for active Murray Goulburn suppliers totalling about $114 million which allows for an increased farm gate milk price of 40¢ per kilogram milk solids (kgMS) to $5.60 per kgMS for milk supplied from November 1 (to be paid monthly), and on completion of the transaction, for milk supplied from July to October . An additional 40¢ per kgMS loyalty payment is also granted in 2018 for active suppliers .
Estimated net value per share/unit of $1.10 to $1.154 after working capital adjustment and other costs, represents a 76 per cent to 84 per cent premium to the undisturbed unit price as at close August 21 just prior to the company revealing it had fielded interest from several parties.
Murray Goulburn said an initial distribution of 75¢ per share/ unit will be paid during the first half of the calender year, but it will need to retain part of the deal proceeds in order to fund retained liabilities under the new owner such as ACCC proceedings, ASIC investigation and unit holder class action.
The deal with Saputo is subject to approval by an ordinary resolution of Murray Goulburn’s voting shareholders, with more than 50 per cent of the votes cast to be in favour of the resolution needed to pass. It is subject to an Independent Expert concluding that the transaction is in the best interest of shareholders, and the competition watchdog and Foreign Investment Review Board also need to give the deal a tick.
The Montreal-based dairy company founded in 1954 by the Saputo family, and has grown to become one of the top ten dairy processors in the world, the largest cheese manufacturer and the leading fluid milk and cream processor in Canada. It is listed on the Toronto Stock Exchange.
It said in a statement by acquiring a well-established industry player, Murray Goulburn, 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 ongoing development of its domestic and international business,” it added.
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