Bega Cheese has bought back the farm by broadening its reach in the food industry, snapping up Vegemite and other Kraft brands in a $460 million deal which takes it far from its roots as a cheese producer.
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In a surprise move, the company said it is to buy the Kraft branded food products businesses in Australia which gives it control of a suite of household names spanning Vegemite to peanut butter, mayonnaise and Kraft processed cheese.
Bega said the acquisition will give it a strong presence in the domestic spreads business.
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.
The deal is a good one for Bega shareholders, it said, since it will boost earnings a share from the first full year of operation.
The Australian cheese producer will borrow the funds needed to complete the acquisition, but it has signalled other initiatives, which may include asset sales to fund the deal.
Also included in the deal are other brands such as Bonox and ZoOsh, along with nut spreads and the like.
"Today is a historic day for Bega Cheese," the executive chairman, Mr Barry Irvin told analysts. "This is an exciting evolution for the company.
"This acquisition will be value accretive in its own right, strategically important and company making. These iconic brands alongside the Bega brand are strong building blocks to enable Bega Cheese to become a great consumer goods business.
"We are buying an iconic brand in Vegemite and some growth opportunities into the future."
Along with the spreads businesses, Bega is acquiring salad dressings and other products such as parmesan cheese, but it 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.
In speaking with analysts, Bega did not rule out going to shareholders to raise funds to partially finance the acquisition although it said it has other transactions it is negotiating which may limit the need for additional funding, without giving details.
Data from Euromonitor shows that sales of yeast-based spreads in 2016 declined to $135.1 million from $137.4 million the year before.
Bega's Irwin did confirm that changing breakfast trends has affected sales of Vegemite with the group now seeking to broaden the marketing to include using the spread at other times of the day. Additionally recent marketing campaigns had reinforced the product with younger consumers, he said.
smh.com.au
