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Bega source confirms due diligence underway on Lion Dairy deal

Sliced cheese
Sliced cheese
Bega is in due diligence to expand it cheese and dairy portfolio.

Australian cheesemaker Bega Cheese is planning to buy the local dairy arm of Japan’s Kirin Holdings, a person with knowledge of the situation told Reuters, potentially accelerating its transformation into a food giant.

As reported by Inside FMCG yesterday, Bega is in final negotiations with Kirin’s Lion Dairy & Drinks with a view to buying the business. However, there is no guarantee of a deal eventuating, the person told Reuters.

Bega is currently conducting due diligence on the business and the source said the price would likely be about A$550 million, slightly higher than the $527 million news channel Nikkei estimated yesterday.

The cheesemaker, which earlier put its shares in a trading halt citing “a material announcement about a proposed acquisition”, declined to comment on Monday.

A Lion spokeswoman also declined to comment. The person was not authorised to comment publicly on the deal and so declined to be identified.

The deal would take the 121-year-old former dairy cooperative closer to a goal of becoming what it has called a “great Australian food company” with iconic Australian grocery brands. Lion has about 6 per cent of the fragmented Australian dairy market, said industry researcher IbisWorld, with household milk brands like Pura and Dairy Farmers.

In 2017, Bega, based in a coastal town of the same name 420km from Sydney, bought most of Mondelez International Inc’s brands in Australia and New Zealand for $460 million, returning the famed condiment Vegemite and Kraft peanut butter to local ownership.

For Kirin, a sale would relieve the Japanese alcoholic drinks giant of an asset it has been trying to offload since 2018 as part of a broader push to divest underperforming overseas assets and move into health and cosmetics.

Kirin was forced in August to scrap an earlier attempt to sell the asset to Chinese food conglomerate China Mengniu Dairy Co Ltd for $600 million after the Australian government blocked the sale amid broader geopolitical tension.

Shares of Bega are up 13 per cent since February, when fears of Covid-19 sent global equities into turmoil, against a broader Australian market decline of 9 per cent, as investors favour stocks seen to benefit from working and entertaining from home.

Meanwhile, Kirin said today that Bega Cheese was among the candidates it was talking to for the sale of its Lion Dairy business, but that no decision had been made.

Byron Kaye writes for Reuters.

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