Bega Cheese has confirmed it will buy Lion Dairy & Drinks for $534 million, substantially boosting its product range and retail presence.
Bega informed the share market of its intention to buy Lion — which produces milk drinks, yoghurt, juices, cream and custard — on Thursday.
Executive chair Barry Irvin said the purchase would provide more manufacturing and distribution resources and benefit its supply chain.
Bega Cheese, which owns Tatura Milk and operates a factory at Strathmerton, will also gain Lion's national manufacturing footprint of 13 sites.
Lion Dairy & Drinks, owned by Japanese company Kirin, produces a number of big-name fresh milk brands, including Pura, Dare, Farmers Union, Big M, Masters, and Dairy Farmers.
Lion also has Australia's largest cold chain distribution network, which supplies convenience stores.
“The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain,” Mr Irvin said.
“The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.”
The sale has been welcomed by Lion’s largest supplier group, Dairy Farmers Milk Co-operative (DFMC).
“Bega’s purchase of Lion Dairy & Drinks ensures our milk supply remains secure, and we can continue providing value and security to our dairy farmers,” DFMC executive officer Mark Kebbell said.
DFMC supplies about 200 million litres of quality milk every year to Lion Dairy & Drinks in a long-term partnership.
The co-operative has more than 300 members from more than 200 farms in Queensland, NSW, Victoria and South Australia.
A previous $600 million bid to buy Lion by Chinese-based company Mengniu Dairy was knocked back by the Federal Government in November last year, while an offer by Canadian-based processor Saputo, which purchased Murray-Goulburn in 2018, was withdrawn on November 20.
The purchase is expected to be completed by the end of January, and will involve raising $401 million from a share sale to institutions and retail investors.
Bega currently sources milk from dairy farmers in Victoria and NSW, with the purchase of Lion now opening up supply from Western Australia, Tasmania, South Australia and south-east Queensland.
Bega has been increasingly diversifying in recent years, spending $460 million in January 2017 to buy most of Mondelez International’s Australia and New Zealand grocery and cheese business, including the iconic Vegemite brand, as well as purchasing Saputo's Koroit milk-drying facility in western Victoria for $250 million and buying a stake in Capilano Honey.
It is anticipated the $560 million purchase will generate more than $3 billion in annual revenue.
Shares in the company have stopped trading while it prepares the share sale.
They last traded at $5.06.