Bega Cheese has won the race to acquire Saputo’s Koroit processing facility in western Victoria for $250 million.
The deal was brokered after the Australian Competition and Consumer Commission (ACCC) required Saputo to sell the plant as part of its takeover of Murray Goulburn, to increase competition for milk in south-west Victoria.
Bega Cheese executive chairman Barry Irvin said the company hoped to increase production at the plant over the coming years.
“We’re buying a facility in a really strong dairy area where we have been collecting milk for almost 10 years, so this cements our presence there,” he said. “And it does so with a very good quality facility, so we’re very pleased to be successful in making that acquisition.”
Job losses ruled out
The deal includes a transition services agreement with Saputo where Saputo will supply 300 million litres per annum until June 30, 2020.
Bega Cheese will offer to help current farmers transition to Bega suppliers over that period.
“We will be hoping and encouraging those farmers to come across and become Bega suppliers, but as part of this deal there is a milk supply guarantee from Saputo that a portion of supply will be from them,” Mr Irvin said.
The Koroit milk-drying plant is one of the largest in Australia, and Mr Irvin said it would work well within Bega’s current network of milk-processing facilities.
Bega Cheese said it would welcome the 108 employees from Koroit to Bega Cheese, and has ruled out any job losses through the acquisition.
It is expected the Koroit facility will generate an annualised EBITDA of $20 million, and Bega Cheese plans to increase capacity at the plant that will in turn improve efficiency and returns.
“We think it’s got significant capacity. It’s done up to 800 million litres of milk,” Mr Irvin said. “Obviously that spare capacity encourages us to go out and try to recruit more milk. Western Victoria is a very big milk-producing area with around 2 billion litres of milk produced there.”
Farmers welcome added competition
United Dairyfarmers Victoria president Adam Jenkins said Bega Cheese was “a good Australian company” and the announcement provided clarity for the dairy industry in south-west Victoria.
“I think there will be overwhelming support for having another dairy company in the area to create … competition,” Mr Jenkins said. “I think the farmgate competition is going to be strong. Bega has a really good track record in Australia.
“It will really put the pressure on the others, so we welcome the news and welcome the competition.”
Mr Jenkins said Bega Cheese had acquitted itself well during the dairy crisis.
“There’s a number of companies, not just Bega, that held their prices and respected their farmers, showed their true colours,” he said. “Farmers at the moment aren’t feeling as confident [but] I think this is one step forward.
“We just hope we end up in a better place in the next couple of years than where we are.”