Bega to get bigger with purchase of Lion’s dairy business

ASX-listed Bega Cheese looks primed to add yoghurt to its portfolio of products after beating out international dairy giant Saputo and Tanarra Capital to the Lion Dairy and Drinks business.

The $550 million deal, now in the final stages of negotiations, would be mostly funded by a capital raising of about $400 million, with the balance to be funded by debt. Bega went into a trading halt on Monday pending an announcement about the proposed acquisition and an expected capital raising.

Bega Cheese is in the box seat to buy Lion's Dairy and Drinks business, which includes labels like Pura Milk, for about $550 million.
Bega Cheese is in the box seat to buy Lion’s Dairy and Drinks business, which includes labels like Pura Milk, for about $550 million.Credit:Paul Harris

Bega, Saputo and Tanarra were all in pursuit of Lion’s dairy and drinks division until Saputo pulled out of the process last Friday. Saputo’s withdrawal opened the door for Bega to enter Lion’s data room over the weekend, giving it access to highly detailed financial information about the business, including significant contracts it has signed.

A successful acquisition will see the $1.1 billion company bring a number of major labels -Pura Milk, Dairy Farmers, Yoplait yoghurt, Farmers Union and Daily Juice – into its fold. Bega would also take charge of an extensive national cold chain distribution network with a vast number of fridges in service stations and convenience stores under the deal, and about a dozen manufacturing sites across Australia.


A spokesman for the Australian Competition and Consumer Commission said that while no formal review was planned of the Bega bid, it was “carefully considering the concerns now being raised by some industry participants”. While the regulator has not flagged any definitive issues with the deal, the Dairy Farmers Milk Co-operative recently said it held concerns about further consolidation in the dairy industry. If Bega’s bid is successful, Bega would control more than half of the dairy processing plants in New South Wales.

Lion is owned by the Japanese brewer and food company Kirin and the business was originally on track to be bought by China Mengniu Dairy for $600 million last November, with the deal getting the tick from the competition regulator. However, that deal was scuttled in August this year after failing to receive approval from the Foreign Investment Review Board.

The transaction marks the next step in Bega’s expansion strategy, which has seen the small dairy farmer co-op evolve into a diversified food business. The company bought Mondelez Australia (formerly called Kraft Foods Limited) in 2017, giving it access to products such as peanut butter.

Andy Forster, senior investment officer at Bega investor Argo Investments, said while he did not know the full details of the proposed deal Bega’s management had a good track record of executing on acquisitions.

“We respect the management team at the end of the day and generally tend to back those guys in,” he said.

“We generally think that they’re pretty conservative, good operators. We have to see the details, but if it’s a good deal I’m sure we’d be likely to support it,” he said.

Meanwhile, Morgans analyst Belinda Moore said Bega’s bid to buy Lion’s dairy and drinks business fits well with its stated goal of adding more food categories to its portfolio.

“This would diversify their earnings into white milk, iced coffees, flavoured milks, plant-based beverages and yoghurt,” she said.

“Bega has always been acquisitive, it doesn’t surprise us that they’re further diversifying,” she said.

Bega and Lion both declined to comment on the deal.

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