Australian dairy co-op Murray Goulburn up for sale, say reports

The company has just recorded a $370 loss after tax and advisor Deutsche Bank is said to be fielding proposals for acquisition

Australia’s struggling dairy co-op Murray Goulburn is said to be up for sale, days after it posted a sales decline of 10% and a AU$370.8m post-tax loss in its 2016/17 annual results.

Murray Goulburn, which was formed in 1950 and is 100% controlled by approximately 2,200 Australian dairy farmers, has endured a turbulent period. In 2016 it cut prices paid to farmers and, in May this year, announced job losses, plant closures and the suspension of dividend payments.

In July, the co-op ceased production of its Kiewa Country Milk, which has now been sold alongside processing equipment to Kyvalley Dairy Group.

The organisation is also said to have shelved plans to partner with US infant formula company Mead Johnson on plans to build a production facility in China.

It announced a strategic review in June and since then said it had received “a number of confidential unsolicited indicative proposals from third parties”.

“These proposals have ranged from concepts around certain non-core assets to larger proposals including whole of company transactions,” it said.

The Board has requested Deutsche Bank to seek more detailed proposals from these and other relevant parties so as to enable Murray Goulburn to assess the merits of such proposals.

The co-op said it will consider any such proposals, but will take into consideration the overall interests of the business and its suppliers, shareholders, and unitholders including: the ability to pay a higher farmgate milk price on a sustainable basis; value implications for shareholders and unit holders; the ability for Murray Goulburn to access capital as required into the future; and the impact on co-operative principles.

Australia’s Weekly Times has reported that New South Wales-based dairy producer Bega Cheese is the most likely contender if a sale process goes ahead.

Asked last month if his company would consider buying Murray Goulburn, Bega executive chairman Barry Irvin said he had an “open mind”.

“I’ve been saying for a long time I think consolidation would help the Australian dairy industry and I think a really strong Australian-owned dairy company would be a great thing,” he told reporters.

“So of course if that’s something that is being speculated or talked about. I would always have an open mind for those sorts of discussions.”

Related: Frances Coppola on the Murray Goulburn saga

As an Australian company, Bega is at an advantage because foreign bidders for Murray Goulburn, headquartered in Melbourne, Victoria, would need Foreign Investment Review Board approval.

The Weekly Times also notes there will be complications because of the co-op’s structure, with units listed on the Australian Securities Exchange and shares owned by the dairy farmers.

Murray Goulburn’s brands include Devondale

Bega would have to offer a mix of its shares and cash at an attractive price to win over Murray Goulburn’s security holders, it says, with 90% approval needed from the co-op’s milk suppliers.

Other potential buyers are said to include include Saputo, Bega Cheese, Lion and Lactalis, alongside offshore contenders such as China’s Bright Foods, which has dairy businesses in Western Australia.

Commenting last week on Murray Goulburn’s annual results, chief executive Ari Mervis said: “MG has experienced a difficult year as a result of the significant reduction in milk intake and adverse seasonal conditions.

“In order to mitigate the resulting impact, a number of important initiatives have been undertaken. These include implementing the manufacturing footprint review, de-recognising the contentious Milk Supply Support Package (MSSP), and delivering on previously announced cost out initiatives.

“Furthermore, a new management team is now in place, and a comprehensive strategic review covering all aspects of MG’s strategy and corporate structure, including the Profit Sharing Mechanism and capital structure, is accelerating. These are all necessary steps to strengthen and improve the performance of MG.”

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