Lion Dairy & Drinks agree to sell speciality cheese business to Saputo.

Lion CEO Stuart Irvine announced an update on the sale of Lion Dairy & Drinks (LDD), including confirmation that Kirin and Lion have reached an agreement to sell LDD’s specialty cheese business to Saputo Dairy Australia (Saputo), for AUD 280 million.

“When we announced the decision to progress a sale of the Dairy & Drinks business last year, we made clear our intention to identify the best future ownership arrangements for the Dairy & Drinks business, and to ensure both Dairy & Drinks and the Lion business are ideally positioned for growth – with the right people, assets and investment behind their respective strategies,” said Irvine. 

“As we worked through the sale process over the last several months, significant bidder interest emerged in both the whole Dairy & Drinks business and also in the specialty cheese assets on a standalone basis. After a careful assessment of all options, Lion has entered into an agreement to sell the Dairy & Drinks Specialty Cheese business to Saputo.  Saputo is ideally positioned to drive the business forward, given its deep dairy capabilities, complementary portfolio and commitment to the cheese category domestically.”

The sale to Saputo will include all of Dairy & Drinks’ specialty cheese brands, including King Island Dairy, Tasmanian Heritage, South Cape, Mersey Valley, Heidi Farm and Australian Gold, as well as cheese manufacturing assets at Burnie (The Heritage) and King Island (King Island Dairy and Cheese Store), and the two Lion-owned farms on King Island (Horizon Glen and Kyeema). 

The sale agreement is subject to ACCC and Foreign Investment Review Board approvals and other standard closing conditions and is expected to complete within the second half of calendar year 2019.

In April 2019 Kirin and Lion assessed the fair value of the Dairy & Drinks business. The recent impact of extreme weather on the cost and availability of milk, combined with discussions with bidders to date in the sale process, have led Lion and its parent Kirin to take the step of recognising a non-cash write down of the carrying value of Dairy & Drinks, including the cheese business.

Lion’s non-cash write down of AUD 530 million does not impact the future underlying performance of the Dairy & Drinks business, which continues to benefit from a highly attractive portfolio of market-leading brands in growing categories – including milk-based beverages, yoghurt and premium juice.

“We are continuing to consider various pathways forward for the balance of the Dairy & Drinks business and will take the time to ensure we achieve the best possible outcome over the coming period,” Irvine concluded.

Lion has been advised by Deutsche Bank as financial adviser, with King & Wood Mallesons as legal adviser. Greenhill & Co Australia have acted as independent financial adviser to Lion.

Lion’s alcohol businesses in Australia and New Zealand, and its Global Markets business unit, are not affected by the Dairy & Drinks sale process.

Source: LionCo

Dairy processors to get tougher when dealing with supermarkets.  

After the positive movement in the dairy industry over the last few weeks due to Woolworths’ decision to abolish $1/L milk, it seems somewhat backward that stories like the one below are being reported following last week's Australian Dairy Conference. Dairy associations across Australia have been trying to get processors to stand up to retailers for years.

However, the power imbalance, predatory pricing behaviour and threats to the continuance of contracts and/or shelf space real estate have left processors in a no-win scenario.

While QDO believes the processors could be doing more to support their farmers, it also acknowledges that the power of the major retailers is a key issue within the value chain that, with the backing of the ACCC report, continues to be swept under the carpet.

Having heavy hitter Saputo enter and expand its portfolio within Australia, may very well signify the change we need to make significant headway towards a sustainable dairy industry.

Please read the article published this week in the Weekly Times below.

Dairy processors believe they need to get tougher when dealing with powerful supermarket chains.

3ab3ff0f94f25c25adf0665fa663078a.jpg

Saputo chief executive Lino Saputo told the Australian Dairy Conference in Canberra last week processors had a responsibility to demand the real value of dairy products when negotiating with retailers to ensure a fair return at all stages of the value chain.

“I go back to Murray Goulburn agreeing to a contract for $1 a-litre milk,” Mr Saputo said.

“It doesn’t make any f … ing sense.

“When you think about $1.10 milk, it isn’t enough. All the 10 cents should go to the dairy farmer.

“Milk at $1.10 (a litre) doesn’t make any sense when you buy water for $3 a litre or soda pop at $4 a litre and those Powerades and Gatorades at $5 a litre.

“It doesn’t make sense when you look at all that work that goes into producing that milk and processing that milk and get it to shelves to sell it for $1 a litre.

“We have a responsibility as processors to be responsible when we are negotiating with the retailers to demand what is the real value for dairy products.”

Bega Cheese chief executive Paul van Heerwaarden said similar arguments could be made for supermarket branded cheese.

Mr van Heerwaarden said it took 10 litres of milk to manufacture a 1kg block of cheese.

“A block of cheese gets sold for $6. That’s 60 cents a litre,” he said.

“There is a need for us to properly have a conversation with the retailers and drive that (message) through.”

Mr Saputo said that if processors did not have those conversations, it “allows the retailers to believe that is the value of dairy”.

Norco chairman Greg McNamara said the dairy industry was also being degraded by supermarket chains placing drought levies on milk and asking for donations from consumers at check-outs, saying “it devalues everything that we as farmers do”.

“We do not want a generation of welfare recipients,” Mr McNamara said.

“We want a generation of farmers that are business savvy and spend the money in the right spots.”