Australian Dairy Farmers Brace for Foreign Takeover

AUSTRALIA - The largest dairy business in Australia, with combined annual sales of more than $3.5 billion, will be formed if a recent transaction is approved by shareholders of National Foods.

8 September 2008

2 minute read

Oceania

Australian Co-operative Foods Limited (ACF), which trades as Dairy Farmers, and National Foods have announced that National Foods will acquire all of the shares in the Co-operative for a cash consideration of $5.65 per share.

This equates to an enterprise value of $910 million for ACF and implies a multiple of 12.8x fiscal 2008 earnings before interest, tax, depreciation and amortisation (EBITDA), which compares favourably with precedent transactions in the sector.

Under the terms of the proposal, it is intended that part of the cash consideration of $5.65 per share will include a fully franked special dividend from ACF of up to 59 cents per share.

In addition, suppliers to Dairy Farmers Milk Co-operative (DFMC) who sign revised contracts will receive competitive farm-gate milk prices. The average regional price will increase between 1 and 2 cents per litre compared with those recently announced by ACF and DFMC and will continue to be linked to composition, supply pattern, farm size and location.

The proposal is unanimously recommended by the ACF Board in the absence of a superior offer and subject to an independent expert’s report determining that it is in the best interests of shareholders. The proposal has also been unanimously recommended by the DFMC Board.

The proposal will be effected via a scheme of arrangement and is subject to shareholder and Court approvals.

ACF Chairman Ian Langdon said: “The National Foods proposal offers ACF shareholders an attractive cash price as well as providing certainty regarding forward farm-gate milk pricing and security of milk supply arrangements. In addition, the proposal delivers on the Board’s commitment to provide shareholders a liquidity event following the Co-operative’s 2004 restructuring.

“To be successful, the National Foods proposal is subject to a number of conditions precedent including the support of more than 75 per cent of active members who vote.

“The proposal is also subject to DFMC entering into revised supply contracts with new or existing suppliers until at least 30 June 2010. This will be for minimum specified volumes by region which will maintain overall milk volumes based on current milk supply levels. This in turn, provides certainty of milk off-take for farmers.

“This competitive farm-gate milk pricing will apply from the first day after the end of the milk supply month in which completion of the acquisition occurs until 30 June 2010. After this period, National Foods has indicated that it intends to continue to pay DFMC suppliers farm-gate milk prices that are competitive in the relevant region,” said Mr Langdon.