It appears to be all over bar the shouting in Victoria’s Koroit.
Street Talk understands ASX-listed Bega Cheese Ltd is the last party standing in an auction to buy Murray Goulburn’s Koroit processing plant in Victoria, which is expected to be worth $200 million to $250 million.
And while Bega has yet to sign a deal – which means it does not need to tell shareholders anything yet – sources said the talks with vendor Saputo had been productive.
So productive that it is understood Saputo’s big cheese, Lino Saputo Jr, has flown back home to Canada having met local stakeholders and with the impression that there is not a lot more to worry about at Koroit.
Should it be signed, it is the sort of deal likely to be welcomed by Bega’s investors; some of whom are waiting by the phone for a call from Bega or its adviser David Williams asking them to tip into a funding package. Bell Potter spearheaded Bega’s most recent raising.
Bega shares are up 5.3 per cent this week in anticipation of the news, to be trading at a lofty 27-times profit. Which means it is not the worst time for the company to go cap in hand to shareholders.
Bega had $273.4 million net debt as at December 31 and is expected to make about $110 million EBITDA in the 2018 financial year. Assuming debt stays about the same at June 30, that would make for about a 2.5-times leverage ratio which means there is unlikely to be headroom for another $200 million-plus bolt on deal.
Saputo has been forced into the sale by the Australian Competition and Consumer Commission, which was concerned about competition in the region if Saputo owned both Warrnambool Cheese & Butter and Murray Goulburn.
Because the ACCC needs to approve the Koroit sale, Saputo must find a buyer the regulator believes will be a viable, strong competitor to ensure farmers have multiple options to sell their milk longer term. Bega is expected to have no troubles ticking that box. Street Talk reported earlier this month the sale was down to two parties; Bega and China-backed Burra Foods.
The Koroit plant is one of Murray Goulburn’s top three processing assets, processing around 300 million litres of milk. But it has capacity to process between 800 million litres and 1 billion litres, depending on the mix between commodity and value-add products. It has infant formula capacity for 45,000 tonnes.
By: Sarah Thompson, Anthony Macdonald
Source: Financial Review