THE banker who led Canadian giant Saputo to victory in the $530 million battle for Warrnambool Cheese and Butter (WCB), Rothschild managing director Sam Prentice, says the deals will keep coming in dairy and hopes Rothschild will help Saputo build its Australian position.
Global and Australian mergers and acquisitions volumes continue to soften but Prentice, who heads up Rothschild’s Melbourne office, is confident about deal flow and expects the dairy, grains and animal protein sectors will see more corporate activity.
«There’s a trend of bringing global companies like Saputo to the Australian market and helping them build out their position,» Prentice told The Australian Financial Review. «Private equity firms are all looking at their portfolios and which of their investee companies are suitable for IPOs.»
In the private equity space, speculation is mounting that Pacific Equity Partners will tap into the frenzy of interest in dairy with a sale of Peter’s Ice Cream, which PEP bought from Nestle for about $250 million in 2012.
Brownes Foods, which Archer Capital bought from Fonterra in 2010, is another dairy business that is getting toward the ripe end of the typical five-to-seven year P/E cycle.
Prentice says that his rivals in the WCB battle, ASX-listed Bega Cheese and Victorian farmer co-operative Murray Goulburn, are both well capitalised and likely on the hunt for acquisitions having banked about $100 million apiece from selling their WCB shares to Saputo.
But he is focused on consolidating the $C10 billion ($10.06 billion) Montreal-based giant’s footprint in Australia now that the dust has settled on the WCB deal.
«There’s a few smaller privately owned milk processors out there and there are still some opportunities for consolidation,» he says.
Since listing in 1997, Saputo has made more than 20 acquisitions worth in excess of $US4.2 billion ($4.65 billion), and the company has made no secret of its ambitions in Australia.
Saputo chief executive Lino Saputo jnr told analysts at the company’s third quarter earnings update that the «runway still is very, very long» on global takeover opportunities.
Bega Cheese has been rumoured to be a target and there is speculation Lion may be willing to offload some its embattled dairy assets.
There are also a handful of small private dairy processors that could be swallowed up, such as Burra Foods and Longwarry Food Park in Victoria.
Prentice points to his work bringing Brazilian meat giant JBS into Australia as a model Saputo may follow. JBS got a toe-hold in Australia with the acquisition of Swift – and its subsidiary Australian Meat Holdings – for about $US1.4 billion in 2007. JBS then snapped up Tasman Group for $160 million and then Rockdale Beef and Tatiara Meat Company. JBS is now the largest meat processor in Australia.
Rothschild, which has a global co-operation agreement on food and agribusiness M&A with Rabobank, is number one for global dairy transactions between 2008-2013 with 26 deals worth $US16.7 billion.
The duo also have top spot for global food and agriculture with 204 deals worth $US79 billion.
The duo advised New Zealand powerhouse Fonterra on its $US432 million listing in 2012 and advised Saputo on its $US1.45 billion acquisition of Morningstar Foods in the US in 2013.
Murray Goulburn, Australia’s biggest dairy exporter, is pursuing its own partial public listing this year with its advisers Lazard and Macquarie. Mr Prentice says that more than half of his deal flow comes from cross-border transactions.
This year Mr Prentice also advised Hong-Kong-based businessman William Hui on his $70 million acquisition of the nation’s biggest privately-owned dairy processor United Dairy Power.
«There’s a lot of demand from wealthy individuals to invest in agriculture in Australia not just from Asia but also the Middle East and other acquirers. There is a lot of money flowing in.»
Prentice is also understood to be working for Parmalat, a subsidiary of French group Lactalis, to buy Western Australia’s biggest dairy exporter Harvey Fresh, although he gives a firm «no comment» regarding the deal.
Last year Fonterra snapped up Tasmanian yoghurt group Tamar Valley while China’s Bright Foods snared West Australian cheese and yoghurt producer Mundella Foods in January.
But it was the hotly contested takeover battle for WCB between Saputo, Bega Cheese and Murray Goulburn that threw the sector into the spotlight.
Alongside the 10 separate offers from the bidding parties, the contest also drew international powerhouses into the consolidation play as the world’s biggest dairy exporter, New Zealand’s Fonterra, snared a 10 per cent stake in Bega Cheese while Lion, which is a subsidiary of Japanese behemoth Kirin, seized 10 per cent of WCB.
Both Lion and Fonterra moved to shore up their Australian operations and protect supply arrangements.
Saputo’s offer closed last week, leaving the Canadians with 87.9 per cent after Lion decided not to sell its stake in the hope it can leverage negotiating power with WCB’s new owners.
«I’ve never seen a contested takeover like this,» Prentice says.
«Something happened almost every day; it was just extraordinary. Going into work you’d expect something, but you didn’t know what it was going to be. There was so much pressure and at times we didn’t where it was heading.»
The WCB bidding war for Australia’s oldest dairy attracted international media attention and underscored the value industry players see in soaring demand for dairy commodities such as milk powders, cheese and infant nutritionals in Asia, and China in particular.
According to government forecaster ABARES, the Asian region now accounts for 57 per cent of global trade in milk powders and 20 per cent of global cheese imports.
Chinese imports of whole milk powder increased more than sixfold to 325,000 tonnes in the three years to 2011, while imports of skim milk powder more than doubled to 130,000 tonnes over the same period.
«The increasing demand for dairy products from China, particularly for milk powders, is ever increasing and that’s likely to continue for a long time to come,» Prentice says. «There’s a whole lot of transactions out there but the Warrnambool situation was largely driven by that export story.»
Source: FarmWeekly
