Australian dairy cooperative Murray Goulburn has warned the failure of a planned takeover by Canada’s Saputo could trigger a chain of events that would cast doubt over the company’s viability.

In October, dairy peer Saputo launched a CAD1.29bn (US$1bn at the time) bid for the loss-making firm entailing the purchase of the co-op’s operating assets and liabilities. The acquisition was targeted to be completed by the end of June this year. 

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However, Australia’s competition watchdog pushed back the date last week on which it is set to announce a verdict on the deal from 15 February to 1 March, to give it more time to consider the data and information underpinning the deal.

Any delay, or even the potential failure of the deal, could starve the business of much needed cash to revitalise Murray Goulburn’s earnings, which remained in the red for the six months to 31 December.

Today (7 February), the company reported first-half sales dropped 5% to AUD1.12bn (US$881.5m) from a year earlier as milk suppliers either retired or ceased milk supply. 

However, after-tax losses narrowed to AUD27.5m from AUD31.9m, and the company turned a pre-tax profit of AUD35.1m, compared to a negative AUD47.8m a year earlier.

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Nevertheless, Murray Goulburn warned in its earnings statement: “If the Saputo transaction does not proceed and in the absence of an alternate transaction, the group may not be able to pay a competitive farm-gate milk price. 

“Further losses of milk flow may trigger an impairment to the group’s assets that could breach banking covenants and result in potential withdrawal of creditors’ support and an increased risk to the group’s ability to refinance its expiring debt facilities.”  

According to its balance sheet, Murray Goulburn’s current and non-current assets totalled AUD1.63bn as of December, while overall liabilities stood at AUD882m, leaving net assets of about AUD747m.

In the event the company should struggle to refinance debt, the firm went on to say: “In these circumstances, the group may not be able to renew facilities due to expire within two years and would need to consider the sale of certain assets in order to generate sufficient proceeds to fund debt repayments. 

“The group would also continue with cost saving initiatives underway and would pursue the refinancing of required maturing facilities. This creates a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.”