Bega is in the spotlight over Fonterra’s $2bn-plus asset sale, with some wondering whether the process will result in a merger deal where the Australian listed buyer embarks on an equity raising.
Bega is in the spotlight over Fonterra’s $2bn-plus asset sale, with some wondering whether the process will result in a merger deal where the Australian listed buyer embarks on a major equity raising mid-year.
One option being floated is that Bega acquires the Australia and New Zealand business, Fonterra Oceania, which is part of the overall suite of assets on offer that has been rebranded Mainland Group.
The idea is that it raises equity to pay for the deal, but funds some of it in scrip, where Fonterra’s shareholders gain Bega shares as part of the proceeds.
Bega, advised by Kidder Williams, is said to be highly motivated to buy the business after a record of success owning branded products and may be in a strong negotiating position due to terms in its contract for Fonterra to use its licensed brands.
Fonterra has been seeking legal advice on a change of control clause on the Bega brand of products for Mainland Group, which include household names in Australia and New Zealand such as Western Star butter, Perfect Italiano cheese, Mainland Cheese and Anchor Butter. Clarity around Bega’s legal rights is expected shortly.
One concern for bidders is that Bega has first right of refusal on the assets.
Mainland Group generates about $150m in earnings before interest and tax before adjusting for lease expenses, but is forecast to double in three to five years.
For 2024, it generated about $5bn of revenue.
Bega’s share price is up more than 30 per cent in the past five years, but came off the boil after its recently reported results, with investors proving to be overly optimistic about the stock.
Shares closed at $5.54, with its market value at $1.6bn.
However, Bega is expected to be disciplined on price and has walked away from fiercely fought auctions before, including the three-way bidding war for Warrnambool Cheese and Butter in 2013 and dairy co-operative Murray Goulburn, which was sold to dairy rival Saputo.
When Bega purchased Lion Drinks and Dairy in 2020 for $560m, it paid about 10 times earnings before interest, tax, depreciation and amortisation.
It may be able to partner with Friesland Campina, which is said to be interested in Fonterra’s Asia and Sri Lanka business, leaving Bega to take the Australia and New Zealand assets.
Other suitors in the mix are the Rothschild-advised Lactalis, which is likely to bid for the entire portfolio on offer, Saputo, Danone, Kohlberg Kravis Roberts, Pacific Equity Partners and CVC.
Meanwhile, in a surprise move, Warburg Pincus has joined the race, DataRoom understands.
Analysts have Bega trading at a 9.8 times EBITDA multiple, forecasting a move to 9 times next year.
That compares to global players Saputo, currently a challenged business, at 8.8 times, Danone at 11.1 times and Nestle at 15.1 times.
New Zealand’s Fonterra, which has been listed in Australia until last month, and is listed in New Zealand, is selling its business through Craigs, Jarden and JPMorgan and is considering an initial public offering as well as a trade sale.
Information memorandums are currently in the market with first round bids due at the end of March.
Mainland Group includes its Australian consumer, food service and ingredients business and New Zealand Fonterra Brands in a new unit now named Fonterra Oceania, as well as its global consumer business and Fonterra Sri Lanka.
The offering includes non-core assets in Asia, the Middle East, Africa and the Americas.
For the six months to December, Bega reported $30.2m in net profit, up 14 per cent on the previous corresponding period.
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