National Foods wins race for Dairy Farmers with $910 million bid

Posted by Daniel Palmer on 25th August 2008

Milk deal

Kirin Holdings, Japan’s largest brewer and owner of Australian-based National Foods, has won the battle to acquire dairy co-operative Australian Co-Operative Foods (ACF) Limited (Dairy Farmers). In conjunction with Warrnambool Cheese and Butter, National Foods outbid other interested parties, which reportedly included Saputo and Murray Goulburn.

Dairy Farmers announced today that National Foods will acquire all of the shares in the Co-operative for a cash consideration of $5.65 per share, consequently valuing Australia’s second largest fresh dairy company at $910 million.

The proposal has been unanimously recommended by the ACF and DFMC (Dairy Farmers Milk Co-Operative) Boards in the absence of a superior offer and subject to an independent expert’s report determining that it is in the best interests of shareholders. It still, however, needs to gain shareholder* and Court approvals.

ACF Chairman Ian Langdon believes the deal should be seen as attractive to shareholders. “The National Foods proposal offers ACF shareholders an attractive cash price as well as providing certainty regarding forward farm-gate milk pricing and security of milk supply arrangements,” he said. “In addition, the proposal delivers on the Board’s commitment to provide shareholders a liquidity event following the Co-operative’s 2004 restructuring. To be successful, the National Foods proposal is subject to a number of conditions precedent including the support of more than 75 per cent of active members who vote.”

“The proposal is also subject to DFMC entering into revised supply contracts with new or existing suppliers until at least 30 June 2010. This will be for minimum specified volumes by region which will maintain overall milk volumes based on current milk supply levels. This in turn, provides certainty of milk off-take for farmers,” Mr Langdon added. “This competitive farm-gate milk pricing will apply from the first day after the end of the milk supply month in which completion of the acquisition occurs until 30 June 2010.”

National Foods Managing Director, Ashley Waugh claims the takeover will result in a dairy portfolio unmatched by their competitors. “National Foods’ successful acquisition of ACF would result in the most respected portfolio of dairy brands in Australia,” he suggested. “National Foods has the capability and financial strength to leverage the acquisition of ACF to create new business opportunities domestically and in the vitally important Asian region – providing suppliers with secure and growing demand for their milk.”

National Foods, which gained ACCC approval after indicating they would be prepared to license some of their brands, is expected to onsell the Ski brand to Fonterra.

The Ski brand, currently owned by Dairy Farmers, is due to be transferred to Nestlé in 2012. However, Fonterra has received approval for a takeover of Nestlé’s yoghurt and dessert range which means that Fonterra would own the brand in 2012, and they are reportedly keen to gain ownership of the brand before the 2012 date.

Kirin announced earlier this month that they were to embark on an aggressive growth strategy with over $3 billion in funds available for strategic acquisitions. With Japanese growth stalling, the company has increasingly been seeking options for expansion in the Asia-Pacific region and there has been rumours they will consider making a play for the Australian beverage division of Cadbury Schweppes. The Japanese giant purchased National Foods last year for about $2 billion and currently have a 46% stake in Lion Nathan Australia.

*A postal ballot for Dairy Farmers shareholders is likely to close in mid-November, with an announcement expected by the end of November.