Japan's Kirin snaps up Dairy Farmers in Australia

Kirin subsidiary National Foods will shell out $790 million to consolidate its position in Australia's dairy industry.
Australian dairy company National Foods announced yesterday that it will take over Dairy Farmers for a firm value of A$910 million ($790 million).

National Foods, which is a subsidiary of Kirin Holdings in Japan, will acquire all the equity shares of Dairy Farmers at a price of A$5.65 per share in cash, including a special dividend of 59 cents per share, totalling A$675 million. The sale is subject to the approval of at least 75% of Dairy FarmersÆ shareholders, which is expected to take about three months.

For the financial year ended June 30, 2007 Dairy Farmers had net sales of A$1.175 billion on which it earned an operating income of A$29 million. The deal is being transacted at a firm value to revenue multiple of 0.75 times and a multiple of 12.8 times Dairy Farmers' A$71 million Ebitda, after adjusting for non-recurring items.

For calendar 2007 National Foods registered sales of A$2.006 billion on which it earned an operating income of A$117 million. The combined firm will have revenues in excess of $3 billion. The acquisition enables National Foods to grow its revenues by 58%.

Dairy Farmers had around 1,800 employees at the end of calendar 2007, working across 12 manufacturing facilities in Australia and its headquarters in Sydney. Its brands include Dairy Farmers for milk, Oak and Moove for flavoured milk, Ski and Thick & Creamy for yoghurt and Coon for cheese.

Dairy Farmers was established in 1900 as a milk co-operative and expanded into cottage cheese and flavoured yoghurts in the 1960s. The corporate structure that exists today was a result of M&A activity in the late 1980s and a restructuring in 2005 when the fast-moving consumer goods business was separated from the milk supply.

Dairy Farmers is a co-operative comprising around 2,000 farmers and is the second-largest manufacturer in Australia of fresh dairy products for retail customers, after National Foods. Dairy Farmers produces and distributes milk, cheese, yogurt and other fresh dairy products.

National Foods is headquartered in Melbourne with 19 manufacturing facilities in Australia, one in New Zealand and two each in Malaysia and Indonesia. It accounts for around 45% of milk sales in Australia, making it a leading player in this category as well as in yoghurt. National Foods has grown through a combination of brand launches and acquisitions and its portfolio currently includes the following brands: Pura for milk, Big M, Farmers Union Iced Coffee and Masters for flavoured milk, King Island Dairy and Tasmanian Heritage for cheese, Yoplait for yogurt and Berri for juice.

The deal consolidates National FoodsÆ position in AustraliaÆs dairy market and is expected to yield significant synergies. It aims to leverage Dairy Farmers to improve its profitability through more stable procurement of raw milk, an expanded distribution network and a more comprehensive brand portfolio spanning all categories of fresh dairy products.

Dairy companies in Australia and New Zealand are benefiting from increased demand from milk from emerging markets such as China and are hence able to command good realisations for their products.

National Foods was acquired by San Miguel in 2005 and in 2007 Kirin bought the company from San Miguel for A$2.8 billion. Kirin has a presence in alcohol and soft drinks, pharmaceuticals and food products including dairy. Over the last few years Kirin, which is best-known within Japan as a brewery, has sought to diversify its revenue stream away from a dependence on beer because wines and spirits have eroded consumer preference for beer and JapanÆs population has aged bringing down overall alcohol consumption. The National Foods acquisition was part of the Japanese firmÆs strategy to diversify both its business segments as well as the countries in which it operated.

National FoodsÆ takeover of Dairy Farmers has already received clearance from the Australian Competition and Consumer Commission and AustraliaÆs Foreign Investment Review Board.

Goldman Sachs JB Were ran an auction for Dairy Farmers. Others reported to be in the fray at various stages include Australian cooperative Murray Goulburn bidding in consortium with Italy's Parmalat, Saputo (Canada), New Zealand cooperative Fonterra, and Singapore's Olam. Kirin was advised by Macquarie Capital Advisers.

Kirin gained 1.9% on the Tokyo Stock Exchange yesterday to close at Ñ1,610 ($14.76).
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