Bega Cheese confirmed on Wednesday it will be the new owner of the former Murray Goulburn Koroit factory.
The announcement to the Australian Securities Exchange confirmed a report in The Standard earlier this month that Bega Cheese was set to be the new owner.
Bega Cheese said it would buy the Korit factory from the current owner, Canadian dairy giant Saputo, for $250 million including average inventory.
The purchase will be fully funded by new and existing bank debt facilities.
As part of the sale, Bega Cheese is guaranteed the plant’s current milk supply of 300 million litres until June 30, 2020.
The purchase is subject to approval from the Australian Competition and Consumer Commission.
The Koroit factory produces bulk and retail butter, commodity and retail milk powders and growing up milk powder.
Bega Cheese chief executive officer Paul van Heerwaarden said the Koroit plant would provide Bega with “a significant presence in western Victoria and operational flexibility with our other milk processing sites.
“Importantly the acquisition will support the continued growth of our core dairy business and provide domestic and export customers with an expanded range of products,” Mr van Heerwaarden said.
He said the factory’s 108 employees would be taken on by Bega Cheese.
Bega Cheese’s executive chairman Barry Irvin said Bega Cheese had been collecting milk in western Victoria for almost 10 years.
“The opportunity to acquire such significant and quality infrastructure will cement our presence in one of the strongest dairy regions in Australia,” Mr Irvin said.
“As always, we will look to work closely with dairy farmers to grow supply to the Koroit Facility.
“This is another important step in creating an Australian owned dairy and food company that is competitive and efficient in Australia and the world,” he said.
Bega Cheese said it expected the Koroit factory to generate annualised Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $20 million assuming the current annual intake of 300 million litres.
Saputo said the Koroit plant currently generated about $240 million in annual revenues.
Bega said there was potential for increased milk intake at the factory.
The plant had a processing capacity of one billion litres and was MG’s biggest processing plant before it was hit hard by an exodus of suppliers after MG slashed its milk price in early 2016.
Saputo was forced to hive the Koroit plant away from the other seven plants it acquired from MG because the ACCC believed it would have too much control of the regional milk market if it owned both the Koroit plant and its other south-west dairy processing plant at Warrnambool Cheese and Butter.
Bega Cheese said the Koroit plant would be integrated into Bega Cheese’s broader network of milk processing facilities but cautioned that it might take until 2020-2021 to fully integrate it into the company.
Dairy farmers in Victoria’s south-west have welcomed the purchase of Murray Goulburn’s former Koroit processing plant by Bega Cheese.
United Dairyfarmers of Victoria Wannon branch vice president Casey Taylor said he personally thought the sale was “fantastic”.
“We have a company coming into the district with a well-proven track record,” Mr Taylor said.
He said he’d spoken with other farmers in the area who were “rapt” with the idea.
“It probably gives farmers in the outer areas, into the lower south-east of South Australia, a bit more confidence,” he said.
“Bega has been collecting milk in the western districts and I would see them going a lot further for milk than what they currently are.”
Winslow dairy farmer Bernie Free said the sale was the best option from the potential buyers he had heard about.
He said Bega seemed to be a progressive company but would need to secure milk supply.
“You do the sums – there is not enough milk in Victoria, to supply all the factories,” Mr Free said.
“I don’t think it will harm the dairy industry and it will possibly be positive for it.”
Timboon farmer Nick Renyard said farmers would be familiar with Bega’s culture.
Bega currently picked up milk from between 70 and 80 suppliers in the region.
“They are going to want to fill that factory,” Mr Renyard said.
The supply agreement would give Bega a chance to stand on its own feet.
“I would think they are probably going to want to be pretty competitive,” he said.
“But it’s quite a lot of supply they will have to sign up,” Mr Renyard said.