The purchase price for the transaction has been announced as C$1.29bn (US$1bn) on a debt-free basis and will be financed through a newly committed bank loan.
Closing early 2018
The transaction was unanimously recommended by the Murray Goulburn board of directors in the absence of a superior proposal, and is now subject to the approval of MG shareholders and customary conditions (including foreign investment approval and clearance by the Australian Competition and Consumer Commission).
The deal is also subject to an independent expert concluding that the transaction is in the best interest of MG shareholders.
Subject to these conditions being met, the transaction is expected to close in the first half of 2018.
MG’s chairman John Spark said the board believes that the transaction represents the best available outcome for suppliers and investors.
Saputo said the acquisition of Murray Goulburn will add to and complement the existing activities of Saputo's Dairy Division (Australia).
Spark noted Saputo is already active in Australia through its ownership of Warrnambool Cheese & Butter (WCB).
“MG has reached a position where, as an independent company, its debt was simply too high given the significant milk loss,” Spark said.
“Securing a sustainable future for MG’s loyal suppliers is of paramount importance to the board. We are pleased with the strong milk commitments secured as part of Saputo’s offer to reward this loyalty.
“Saputo has demonstrated itself to be a credible and trusted partner for Australian dairy farmers through its investment in WCB.”
Murray Goulburn said the transaction includes MG milk supply commitments for active MG suppliers totaling approximately US$87.5m, which will enable a step up of A$0.40 (US$0.31) per kilogram milk solids (kgMS) to A$5.60 (US$4.30) per kgMS for the FY18 FMP for milk supplied from November 1, 2017 and, on completion of the transaction, for milk supplied from July to October 2017; and an additional $0.40 per kgMS loyalty payment in FY18 for active MG suppliers.
The cooperative said suppliers will also benefit from a series of commitments from Saputo ensuring milk collection and market pricing into the future.
In terms of future commitments, MG said Saputo has made binding commitments to active MG suppliers.
Saputo will to collect milk from all active MG suppliers for five years from the FY19 season, on terms no less favorable than MG’s existing collection terms, and after this period will also continue to collect milk on ‘reasonable terms.’
Also, for a minimum of five years from the FY19 season, Saputo will undertake to pay active MG suppliers a market competitive farmgate milk price. This will be the greater of the WCB farmgate milk price and the average of the farmgate milk price of the two largest milk processors in the Southern Milk Region or New South Wales milk region (as applicable) at the relevant time.
On completion of the transaction, Saputo said it will establish a supplier relations and pricing policy committee, which will consist of four active MG suppliers, two WCB supplier representatives and three Saputo representatives.
MG produces a full range of dairy foods, including drinking milk, milk powder, cheese, butter and dairy beverages, as well as ingredient and nutritional products, such as infant formula.
MG supplies the retail and foodservice industries globally with its Devondale, Liddells and Murray Goulburn Ingredients brands.
Murray Goulburn has approximately 2,300 employees and operates 11 manufacturing facilities in Australia and China.
For the 12-month period ended on June 30, 2017, MG had revenues of approximately C$2.5bn (US$1.95bn) and adjusted EBITDA of approximately C$78m (US$60m).
The company said it intends to continue investing in its Australian businesses.