National Foods, the Australian unit of Japanese conglomerate Kirin Holdings, will acquire all outstanding shares of Dairy Farmers in a deal valued at A$910m (US$773.89m).

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The offer represents a cash consideration of $5.65 per share and includes a fully franked special dividend of up to $0.59 a share payable by Australian Co-operative Foods (ACF), the owner of Dairy Farmers.


The dairy cooperative’s board has unanimously endorsed the deal, which includes a provision to ensure that Dairy Farmers’ suppliers who sign revised contracts will receive competitive farm-gate milk prices.


“The National Foods proposal offers ACF shareholders an attractive cash price as well as providing certainty regarding forward farm-gate milk pricing and security of milk supply arrangements,” ACF chairman Ian Langdon said.


Despite $170m in costs related to its restructuring, ACF posted full-year EBITDA for fiscal 2008 of $71m, which represents a year-on-year 25% jump in earnings. On this basis, the National Foods’ offer represents an implied multiple of 12.8 times EBITDA.

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According to ACF chief executive Rob Gordon, the offer therefore “compares favourably with precedent domestic and offshore transactions in the sector”.


“If successful, the proposal will allow shareholders to reap the rewards of significant sector rationalisation. In turn, this will lead to a stronger and more vibrant dairy industry – one that provides ongoing benefits for suppliers,” Gordon said.


The move will be put to the company’s farmer-shareholders in September.


In a related transaction, National Foods’ partner in the takeover, Warrnambool Cheese and Butter Factory, will establish a joint venture to operate the cheese business of Dairy Farmers.


The joint venture between National Foods and Warrnambool will own, license and market Dairy Farmers’ cheese products.


National Foods has already secured regulatory clearance.