Canada’s Saputo to acquire Murray Goulburn dairy co-operative

The deal follows a difficult period for the Australian dairy which is facing court action from regulators

Canada’s dairy company Saputo has entered a binding agreement with Murray Goulburn co-operative, which will see it acquire all of the operating assets and liabilities of MG for approximately AUD $1.31bn.

The transaction was unanimously recommended by the MG board directors and is subject to approval by regulators as well as an ordinary resolution of MG’s voting shareholders.

MG chairman John Spark said: “The board believes that the transaction represents the best available outcome for our suppliers and our investors.

“Saputo is one of the top ten dairy processors in the world and active in Australia through its ownership of Warrnambool Cheese & Butter (WCB). This transaction will crystallise real value for MG’s equity, while rewarding our loyal suppliers through the milk supply commitments.”

He added: “MG has reached a position where, as an independent company, its debt was simply too high given the significant milk loss. Securing a sustainable future for MG’s loyal suppliers is of paramount importance to the board.

“We are pleased with the strong milk commitments secured as part of Saputo’s offer to reward this loyalty. Saputo has demonstrated itself to be a credible and trusted partner for Australian dairy farmers through its investment in WCB. The transaction has the unanimous support of the MG Board.”

With this transaction, MG announced new commitments regarding milk supply to Active MG suppliers. The business will step up the fiscal year (FY) 2018 farmgate milk price by $0.40 per kg MS to $5.60 per kg MS for milk supplied from 1 November 2017.

In addition, MG will give suppliers a $0.40 per kg MS retrospective back pay amount in respect of all qualifying milk solids supplied between 1 July 2017 and 31 October 2017, reflecting the difference between MG’s current FY18 farmgate milk price of $5.20 per kg MS and $5.60 per kg MS. Active MG Suppliers will also receive a $0.40 per kg MS loyalty payment for all milk supplied in FY18.

Saputo has committed to collect milk from all active MG suppliers for five years from the FY19 season on terms no less favourable than MG’s existing collection terms. The Canadian company also agreed to pay Active MG Suppliers a market competitive farmgate milk price for the same period.

Regarding representation, once the transaction is completed and MG is wound up, Saputo will establish a supplier relations and pricing policy committee. This will comprise four Active MG Suppliers, two WCB supplier representatives and three Saputo representatives.

Earlier this year, the Australian Competition and Consumer Commission launched Federal Court proceedings against Murray Goulburn and its former chief executive over claims they misled and mistreated farmers.

Another class action was filed last year by investors over allegedly misleading the market ahead of its float last year. MG will be wound up after the conclusion of these steps.

MG intends to make an estimated initial distribution of the net transaction proceeds of approximately AUD $0.75 per share and unit, to be paid shortly after completion. Further cash distributions to shareholders and unitholders are expected upon conclusion of the regulatory actions and class action.

“The recent events at Murray Goulburn demonstrate that co-ops must have a strong balance sheet in order to support family farming. Murray Goulburn took an understandable path to look for external financing,” said, Melina Morrison, chief executive of the Business Council of Co-operatives and Mutuals (BCCM), the apex body for Australia’s co-ops. “That’s not an unusual thing for co-ops to do. Co-ops are a successful business model but can be constrained when it comes to funding for growth.

“But the options are limited for co-ops and mutuals, and that leads to innovative thinking and unique solutions that are untested. As an industry organisation, our role remains to open up options for co-ops in Australia to secure funding through changes to legislation and through greater education and awareness that do not lead to the inadvertent corporatisation.”

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