Kirin to sell Lion Dairy & Drinks

11 Oct, 2018 07:49 AM
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Lion chief executive Stuart Irvine said Lion believed a sale of Dairy & Drinks in its entirety was the best option to set both Lion and Dairy & Drinks. Louise Kennerley
Lion has already received unsolicited approaches from potential buyers during the strategic review
Lion chief executive Stuart Irvine said Lion believed a sale of Dairy & Drinks in its entirety was the best option to set both Lion and Dairy & Drinks. Louise Kennerley

Japanese brewer Kirin has kicked off the sale process for its Australian dairy and juice business, Lion Dairy & Drinks, after completing a strategic review earlier this week.

Lion, which is 100 per cent owned by Kirin, launched a strategic review of Dairy & Drinks last month and considered various options including selling the business, selling individual assets and further restructuring.

Lion chief executive Stuart Irvine said on Wednesday following careful consideration, Lion believed a sale of Dairy & Drinks in its entirety was the best option to set both Lion and Dairy & Drinks up with the capital and resources needed for future growth.

Lion has appointed Deutsche Bank, King & Wood Mallesons and Greenhill and Co as advisers.

Lion has already received unsolicited approaches from potential buyers during the strategic review and will now formally engage with interested parties.

Potential buyers include Coca-Cola Amatil, which last week snapped up a stake in functional beverages business Made Group in partnership with The Coca-Cola Co, Parmalat, and private equity investors.

Growth opportunities

Mr Irvine said after a three-year turnaround program Dairy & Drinks had been transformed and now had a sound platform for future growth.

However, Dairy & Drinks would require new capabilities and capital investment to more fully leverage growing consumer wellness trends, he said.

"The sale process will focus on finding the right owner to take LDD forward and unlock its full potential," he said.

"The remaining Lion business (Lion is Australia's second largest brewer) has a number of avenues for growth available and the decision to sell LDD will realise the capital needed to accelerate investment behind these," he said.

Lion Dairy & Drinks has an estimated 19 per cent share of the milk processing market, and buys close to 1 billion litres of milk a year, according to IBISWorld.

It owns category leading brands such as King Island and Southcape cheese, Dairy Farmers and Pura Milk, Yoplait and Farmers Union yoghurt, Big M and Dare flavoured milk and Berri fruit juice.

Declining sales

However, sales and earnings have been in decline for years as the business struggled to recoup rising costs amid stiff competition from other processors and pricing pressure from Coles and Woolworths, including $1 a litre milk.

In the past three years, Lion has closed plants, shut down its international unit, sold its everyday cheese business, trimmed staff and slashed the number of product lines to reduce costs, reinvesting the savings into innovation and new product development.

The business appears to be finally turning around and Kirin is forecasting a 27 per cent increase in Dairy & Drinks earnings to $79 million on sales of $1.85 billion in 2018.

Mr Irvine said any sale of LDD would not impact on Lion's alcohol businesses in Australia and New Zealand.

Kirin paid $2.8 billion for the then National Foods in 2007 and $910 million for NSW-based co-operative Dairy Farmers in 2008, but has struggled to achieve a satisfactory return on its investment.

The Japanese brewer has written down the value of Lion Dairy & Drinks by $2.14 billion since 2010 and, according to the Australian Financial Review was quietly testing the market for interest in the business in June last year.

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