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Bega Cheese Signals Diversification Push with Peanut Company Bid

November 13, 2017

Bega Cheese has entered into a placement agreement and bid implementation agreement for the takeover of the Peanut Company of Australia (PCA) in a deal valued at approximately A$12 million(US$9 million).

Under the terms of the placement agreement, Bega will subscribe for a 19.99 percent stake in the peanut supplier for a consideration of A$1.9 million (US$1.45 million). Then, under a bid implementation agreement, Bega will proceed with an unconditional takeover bid of A$10 million (US$7.62 million) through which it will acquire all shares not yet owned in PCA.

Located in Kingaroy, in Queensland, publicly listed PCA has been a leading supplier of peanuts in Australia for more than 90 years, and is globally recognized for its peanut R&D programs.

“Bega’s acquisition of PCA will ensure continued Australian ownership of our iconic peanut business,” said Ian Langdon, chairman of PCA, in a letter to the company’s shareholders. “The PCA Board considers that the Bid, if successful, will also facilitate business expansion opportunities and provide confidence to farmer suppliers to expand peanut plantings, increase production and therefore provide additional supply to our customers.”

A Global Food Company

Founded in 1899 in New South Wales, Bega Cheese has grown to become a leading name in the global dairy sector, however, this and other recent deals made by the company have signaled its intent to diversify beyond the segment into a global food company – and the company has the war chest to back up its plans.

In January of this year, Bega struck a deal with Mondelez International for its Australian and New Zealand grocery and cheese business for A$460 million (US$350.6 million). The deal gave Bega ownership of the iconic Vegemite brand, bringing ownership back to Australia, as well as a range of peanut butter, salad dressing, and cheese brands, and gave Bega entry into the $700 million spreads market.

Overall, Mondelēz International’s Australian and New Zealand grocery and cheese business controls 31 percent of the A$500 million spreads category in Australia, with Vegemite being the leading spread, which claims a 14 percent share over the category, and an 89 percent share of the yeast sub-segment.

Through the deal Bega also gained ownership of the Kraft Peanut Butter factory in Victoria. And Barry Irvin, executive chairman of Bega Cheese, noted that the acquisition of PCA will help ensure the continued growth of peanut supplies for its Victoria facility.

“We have plans to increase the domestic supply of peanuts by working with farmers to expand peanut plantings and product,” Irvin said. “We have a long history of working with farmer suppliers in the dairy industry and we will apply that experience to the peanut industry.”

Funding this expansion, and fueling expectations of further deals, is a war chest of $172 million Bega gained through a capital raising concluded earlier this year. Originally launched at $160 million, with the company expecting to raise $122.5 million through an institutional placement and another $37.5 million through a share purchase plan, Bega ended up receiving offers of $625 million, or four times their targeted amount, from institutional investors, leading the company to close its book mid-day.

Irvin communicated to shareholders at an annual general meeting held toward the end of October, that the extremely successful capital raising “significantly strengthened our balance sheet and positioned the company well to grow and respond to corporate opportunities,” reported the Sydney Morning Herald.

“Bega Cheese has always maintained a strong balance sheet, believing that we should be in a position to respond to business opportunities if and when they present themselves,” he said. “These opportunities will inevitably include both organic growth and acquisitions.”

At the same meeting, Bega CEO Paul van Heerwaarden, told investors, “Increasingly we consider opportunities that extend beyond dairy but are consistent with our competencies.”

Also, in August of this year, Bega announced a five-fold increase to full-year profits at $139 million – only one day after rival Murray Goulburn posted a loss of $371 million. Bega’s healthy results were gained through a $124 million gain on the sale of infant formula plants earlier in the year and a three percent gain in revenue, according to Sky News.

Bega’s deal for PCA, which will further drive the company’s growth, has already gained the PCA Board’s approval, and is expected to be completed by the end of this year.

“The PCA Board unanimously recommends PCS shareholders accept the bid from Bega, subject to the independent expert’s opinion and in the absence of superior proposal being received by PCA,” stated the company in a letter to its shareholders regarding the deal.

-Lynda Kiernan 

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.

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