Bega Cheese (BGA) will probably have to ask shareholders for help to finance the $460 million purchase of Vegemite and other brands from US group, Mondelez.
The likelihood of an issue to help cut the cost of the deal (and limited the amount of debt Bega will take on board) failed to stop shareholders from chasing Bega shares yesterday.
They ended up more than 15% at $5.16.
Bega surprised with an announcement early yesterday which revealed that said it will acquire Vegemite, ZoOSh mayonnaise and Bonox under the deal to buy most of Mondelez International’s Australia and New Zealand grocery and cheese business.
"In addition to Vegemite and the other brands being undeniably iconic, the people we are taking on are very impressive and will play an important role in growing the merged business," Bega executive chairman Barry Irvin said in a statement.
Bega will also get the right to use the Kraft brand under licence for products including peanut butter, nut spreads, processed cheese slices, parmesan and others, as well as Mondelez’s Port Melbourne site.
The deal will be funded by bank debt to start with, but brokers say Bega will have to refinance some of the cost with a rights issue to shareholders.
“We’re extremely proud of our history as the custodian of the Vegemite brand for over 90 years, transforming it from its local roots into a global icon that’s synonymous with Australia," Mondelez International vice president Amanda Banfield said.
Mr Irvin said dairy processing will remain Bega’s core business and that the acquisitions should give Bega’s dairy farmer suppliers more confidence and security because they would be dealing with a stronger business with strong and stable returns.
Along with the spreads businesses, Bega’s deal does not include Kraft’s Philadelphia cheese business. Ownership of the Kraft brands transfers back to the US-controlled group at the end of the year, with transitional arrangements to be undertaken, Bega said.
The link with Kraft began in 2009, when Bega began producing some of the US company’s processed cheese products.
The revenue of the businesses being purchased run at $310 million a year with the gross profit, as measured by earnings before interest, tax, depreciation and amortisation running at $40-45 million in the first full year. Bega expects its newly acquired business to generate $40 million to $45 million in earnings before interest, depreciation and amortisation (EBITDA) in its first full year of operation, and to increase earnings per share.
