BGA chart, page-4

A useful story from July by Chanticleer, John Durie, for The Australian.
Fonterra not happy here nor with the branding situation and can clot supplies?
And more ...
..and still relevant .
Has there been a milk supply battle since acquisition?
Cheers


https://www.theaustralian.com.au/bu...y/news-story/681861371affa0ec33b21c6653292855

“Bega readies for milk supply battle as it goes back to its roots with dairy plant buy

Bega only sources 100 million litres of milk a year from Western Victoria and this will have to be increased substantially. Picture: Jamie-Lee Oldfield


“Bega now faces a battle with global dairy giants Fonterra and Saputo to grab more milk to fill its newly acquired Koroit plant in Western Victoria.

The $250 million acquisition will add $20m to its forecast earnings before interest tax, depreciation and amortisation of $126m this financial year, according to the firm.

The company only sources 100 million litres of milk a year from the region and this will have to be increased substantially.

US giant Mead Johnson was considering investing in the Koroit plant with Murray Goulburn but pulled out and acquired a plant from Bega at Tatura instead.

Just what the terms of this deal were and what it means for future Bega output is not known but it is understood there are no restrictions. Then there is the issue of getting more milk supply.

Bega will no doubt be relying on its good name and an opening milk price of $5.85 a kilogram of milk solids.

This is the same price being offered by Fonterra but five cents a kilogram more than Saputo.

Bega’s shares extended their recent rally in early trade after jumping five per cent in the last two days, with house broker Deutsche Bank leading the trade.

There is an outstanding eight per cent short position which suggests there is a short squeeze ahead of a potential entitlement issue.

Based on past performance, the company will leave it a few months before any issue.

Last year after the $460m Vegemite acquisition it waited six months to raise $160m at $5.35 a share and the overwhelming majority went to existing shareholders.

After increasing five per cent in the last two days, the stock is up 2.3 per cent this morning at $7.88 a share or 25 times Morgans forecast earnings of 31.9 cents a share.

This is expensive by any measure.

Bega chair Barry Irvin is holidaying in Africa at present to keep a family commitment in between completing the long-expected deal signed this morning.

The deal is subject to ACCC approval but this is expected as it will now open the way for a three way bidding battle in the region, restoring the position prior to this year’s $1.3 billion Saputo acquisition of Murray Goulburn.

The Weekly Times reported today that Saputo emerged from that deal with a $170m bonus, namely the cash left in the bank at the last remaining Victorian milk co-op.

That cash is at odds with MG’s claim it was on its knees and forced to give itself up for sale but history has now already been written.

Fonterra has flagged a potential new co-op but talk in the trade says it was not exactly rushed off its feet by farmers with one third in favour, one third against and one third not caring either way.

Saputo is committed to supplying 300 million litres to the 800 million litres Koroit facility until the end of June 2020 but Irvin is obviously hoping he can transfer that milk to his company away from Saputo.

Fonterra won’t be sitting back watching supply move to Bega which is exactly the competitive dynamic the ACCC was hoping to encourage.

Saputo is now Australia’s biggest milk processor at 3 billion litres, followed by Fonterra at two billion litres, Lion and Parmalat at one billion a piece and Bega at 650 million litres.

Lion and Parmalat tend to be more fresh milk providers while the others are more processors.

Saputo is committed to supplying Coles house brand milk until 2024 under the 10-year deal MG signed with the retailer five years ago.

The Koroit facility, with the appropriate investment, will boost Bega’s powder capacity which will add to existing facilities in Tatura in the north of Victoria.

Bega last year spent $460m buying peanut butter capacity and Vegemite, boosting its non-dairy earnings to 25 per cent of the total.

But this deal marks a return to its roots and signals the start of a battle in Western Victoria for more milk against global behemoths Fonterra and Saputo.”

JOHN DURIE

SENIOR WRITER/COLUMNIST
John Durie is the paper's senior business commentator. He has been a business reporter for 35 years, starting his career in the Canberra Press Gallery in 1980. John worked for 13 years as Chanticleer Columnist for the AFR, four years as business columnist for the New York Post, and also worked in Paris. John won the 2013 News Business Journalist of the Year Award.