The worst kept secret in Australian dairying has finally been announced, with Bega Cheese buying former dairy co-operative Murray Goulburn’s Koroit processing plant for $250 million. Canadian dairy giant Saputo was forced by Australia’s competition watchdog to divest the Koroit plant as part of its $1.31-billion buyout of MG.

Last month The Weekly Times reported Bega was emerging as the frontrunner for the purchase of the former Murray Goulburn dairy factory at Koroit.

Bega Cheese chairman Barry Irvin said the purchase would cement the company’s presence in western Victoria.

“As always we look to work closely with dairy farmers to grow supply to the Koroit facility,” Mr Irvin said.

“This is another important step in creating and Australian owned dairy company that is competitive and efficient in Australia and the world.”

Bega estimates the Koroit plant will yield about $20 million in earnings before interest, tax, depreciation and amortisation on the back of about 300 million litres supply from the region’s farmers.

Under the deal, Saputo must guarantee Bega 300 million litres of supply until June 30, 2020.

That was an extra year’s extension from the guarantee Saputo gave the Australian Competition and Consumer Commission.

Earlier this year, the Canadian company said it would guarantee milk supply until June 30, 2019.

Bega Cheese chief executive officer Paul van Heerwaarden said the deal with Saputo allowed for adjustments from the 300 million litre supply guarantee if Bega convinced former Murray Goulburn suppliers to switch to it.

Mr van Heerwaarden said Bega Cheese was actively trying to convince new farmers to switch to supplying the company as part of its normal recruiting program.

He said Bega needed to build up its own milk supply in the Western District now in readiness for the end of the arrangement with Saputo on June 30, 2020.

“We have been sourcing milk in the Western District for more than 10 years now,” Mr van Heerwaarden said.

“We have been increasing our presence down there, so we will have additional milk (beyond the 300 million litres guaranteed by Saputo) to pour into the Koroit factory.

“That milk currently goes into our network, including our Coburg and Tatura facilities.”

Mr van Heerwaarden said the acquisition of the Koroit plant increased Bega Cheese’s milk processing volume by 25-30 per cent.

“But the opportunity for us — which is a very exciting one — is to continue to grow and diversify our milk pool,” he said.

“The Koroit facility provides us with an opportunity to diversify our product offering.

“Koroit has a great capability and capacity with butter, both in bulk form and retail form.

“It’s a highly efficient operation.

“It also produces adult milk powders packed into sachets.

“They’re lines which we don’t do today.

“It really is an exciting opportunity for us.”

Mr van Heerwaarden said the purchase of the Koroit factory would be funded through existing bank debt facilities and further borrowings.

He said the deal still had to be approved by the ACCC.

It was expected to be completed by September.

Article sourced from