THE dramatic bidding war for Warrnambool Cheese and Butter (WCB) is proof that for bidders, valuation of Aussie agribusiness assets has gone way beyond fundamental and into the stratospheric realms of strategic.
With this in mind, it will be interesting to see how quickly buyers are re-rating the rest of Australia's dairy sector based on the WCB case. That's because WCB isn't the only dairy asset people for which people are queuing.
In Western Australia, buyers are circling processor Harvey Fresh, which accounts for about a third of the state's fresh milk market. It is believed there is a handful of offshore – mostly Asian – buyers looking at the asset. Italian dairy giant Parmalat is said to be the only party with local operations to have expressed an interest.
West Australian investment firm Pendulum Capital is advising that Harvey Fresh, which is family-owned, generates earnings of between $10 million and $15 million and is expected to fetch more than $100 million. Harvey Fresh started processing juice on 100 hectares of land in the farming community of Harvey, south of Perth, in 1986 and now runs a juice plant, a dairy factory and a winery for the Harvey River Bridge Estate and Joseph River labels.
The company acquired juice processor Nugan Quality Foods in February 2012 for an undisclosed sum, in a bid to capitalise on a "booming export market" for fruit and vegetable juices from Australia into south-east Asia.
But in June this year, Harvey Fresh slashed 15 jobs following a strategic review, blaming deteriorating business conditions.
Discussions with Parmalat, one of three global giants operating in the Australian market alongside Lion and Fonterra, are said to be well-advanced, although sources close to the situation said a signed deal was still weeks away.
Parmalat's last acquisition in Australia was the $70 million purchase of assets from Kirin-owned National Foods in 2009, as part of the latter's Australian Competition and Consumer Commission requirements for its $910 million acquisition of Dairy Farmers. Rothschild is understood to be advising Parmalat.
The Harvey Fresh sale comes as milk processors around the world jockey to take advantage of growing demand for cheese and milk powders, particularly for infant formulas, in Asia.
China's per capita consumption of milk, butter and whole-milk powders has been growing at 5% a year since 2010. Cheese consumption is growing at 3.7%, according to analysis by the Commonwealth Bank released earlier this year.