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Bega Cheese (ASX: BGA) will acquire Kirin-owned Lion Dairy & Drinks for $534 million, effectively bringing the former National Foods brands back into Australian hands.
The deal, which will be funded through existing debt facilities and a planned $401 million capital raising, will bolster Bega's position in the food market by creating a business with annual revenue of more than $3 billion.
Bega, already a champion of Australian-owned products after buying back Vegemite from US food giant Mondelez in 2017, will now bring all the Lion Dairy & Drinks brands into its stable.
These include milk products Dare and Big M; Yoplait yoghurts; the Dairy Farmers, Pura and Farmers Union brands; and Daily Juice and Juice Brothers.
Bega Cheese executive chairman Barry Irvin said the deal, which settles at the end of January, will create significant value for shareholders.
"The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain," Irvin said.
"The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company."
The benefits for Bega stretch beyond the brands it is acquiring, with Lion Dairy & Drinks also owning Australia's largest cold chain distribution network that supplies food service and convenience stores from 13 sites nationally.
The deal also brings strategic alliances and joint ventures with Sodima, with which Lion has a licence to produce and distribute Yoplait products in Australia and parts of South East Asia, and Vita International Holdings with its Vitasoy products.
The acquisition is expected to double Bega's annual revenue to $3 billion from the $1.49 million it delivered in FY20.
It also strengthens Bega's core dairy footprint with the annual milk intake set to increase from 955 million litres to 1.7 billion litres. Bega says the deal will expand its product capability into new branded dairy categories.
Bega is anticipating synergies of $41 million a year following the integration of the business, largely though its milk network and corporate operations. It is expecting the merger to deliver double-digit earnings per share accretion in FY22.
Bega Cheese CEO Paul van Heerwaarden said recent acquisitions by the company had been performing well by either meeting or exceeding profit targets.
"The recent company restructure and ERP implementation will allow us to integrate this acquisition and take advantage of the various synergies and growth opportunities across domestic and international markets," he said.
Bega posted a net profit of $21.3 million in FY20, up from $4.4 million a year earlier.
The company is planning a one for 4.5 pro-rata accelerated non-renounceable entitlement offer of about $220 million and an institutional placement of $181 million to fund the acquisition. The placement will see Bega issue 39 million new shares, representing about 15 per cent of its shares currently on issue.
Bega shares are currently in a trading halt until tomorrow morning.
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