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  • Bega Cheese (BGA) is set to snap up dairy giant Lion Dairy and Drinks (LD&D) in a half-billion-dollar purchase deal
  • The company will pay $534 million for the buy, of which $401 million will come from a capital raise launched today
  • Chinese company Mengniu Dairy lobbed a bid for full control of LD&D in November 2019, but Treasurer Josh Frydenberg blocked the purchase on national interest grounds
  • Now, Bega is set to acquire LD&D and the company's big brands, which include Dare, Farmers Union, Yoplait, Juice Brothers, Pura, and more
  • To help fund the buy, Bega is raising $220 million from an institutional and retail entitlement offer and $181 million from an institutional placement
  • All new shares will be priced at $4.60, which represents a discount of over 9 per cent to the company's last closing price
  • Bega shares have been in a trading halt all week, last closing at $5.06 on Friday, November 20

Bega Cheese (BGA) is set to snap up dairy giant Lion Dairy and Drinks (LD&D) in a half-billion-dollar purchase deal.

Bega told shareholders today it expects the deal to be completed at the end of January 2021. The company will pay $534 million to buy up LD&D from its current owner, Japan-based beverage company Kirin.

To fund a large portion of the buyout, Bega has tapped investors for $401 million through a share placement and entitlement offer.

The deal is a slight discount to the $600 million takeover bid for LD&D from Chinese company Mengniu Dairy from November last year. Mengniu was vying for full control of LD&D, but the potential deal was blocked by Federal Treasurer Josh Frydenber on national interest grounds.

Now, a year later, Bega Cheese has stepped up in Mengniu's place. Bega Executive Chairman Barry Irvin said the deal will create "significant value" for shareholders.

"The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain," Barry said.

"The expanded product range, manufacturing and distribution infrastructure and
brand portfolio realises our ambition of creating a truly great Australian food company," he said.

Why the buy?

First and foremost, LD&D's products and brands are complementary to Bega's existing product offering.

LD&D owns big names like Dare, Farmers Union, Yoplait, Pura, and Juice Brothers, among more. Importantly, LD&D also has Australia's largest national cold chain distribution network.

Further, LD&D and Bega are already joint venture partners over Capitol Chilled Foods Australia (CCFA). This is a dairy product manufacturer based in the Australian Capital Territory.

With LD&D pulling in a nifty $1.6 billion in revenue for the 12 months to September 2020, Bega said the combined business is expected to general more than $3 billion in annual revenue.

Together, the companies can create a large-scale dairy and foods business with their highly complementary consumer packaged goods supply chain and organisational capability.

The capital raise

To help fund the LD&D purchase, Bega is launching an entitlement offer and an institutional placement.

All new shares as part of the capital raising will be offered at $4.60 each, which represents a discount of over 9.1 per cent to the company's last closing price of $5.06.

Under the entitlement offer, eligible shareholders can subscribe for one new share for every 4.5 already held. Bega plans to raise $220 million through the entitlement offer, which will be split into an institutional and a retail segment.

Institutions get first dibs at new Bega shares, with the first part of the entitlement offer opening today. The retail segment of the offer will give mum and dad investors a chance to top up at the discounted price from Wednesday, December 2.

The remaining $181 million will be raised through an institutional placement, which launched today.

Bega shares went into a trading halt on Monday, November 23, as the company prepared for this week's news. Bega said shares will only be released once the placement has been completed, which is likely to be tomorrow morning.

Shares in Bega last closed at $5.06 each in a $1.09 billion market cap.


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