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Say Cheese! Bega Cheese (ASX:BGA) shares rise on Lion Dairy acquisition

  • November 27, 2020 04:17 PM AEDT
  • Team Kalkine
Say Cheese! Bega Cheese (ASX:BGA) shares rise on Lion Dairy acquisition


  • BGA shares quoted higher after trading resumed this morning. Investors are cheering the recent acquisition news.
  • The transaction underscores the commitment to become a great Australian food company, says Bega Cheese. 
Gold MTF non-AMP

Bega Cheese Limited (ASX:BGA) has completed the placement and the institutional entitlement offer components of its capital raising program, which was partly announced to fund the acquisition of Lion Dairy & Drinks Pty Ltd. 

Image Source: © Kalkine Group 2020

On 27 November 2020, BGA shares quoted at $ 5.435, up by 7.41% from the previous close. The shares resumed trading this morning after a trading halt to accommodate the capital raising and acquisition announcements. 

The jump in Bega Cheese shares reflects investors’ strong endorsement for the acquisition of Lion Dairy & Drinks. The placement and the institutional entitlement offer have raised around $181 million and $103 million, respectively. 

The diversified food company would issue around 62 million new shares as part of the placement and the institutional entitlement offer. Of the total, around 39 million shares are earmarked for the placement while approximately 23 million shares are for the institutional entitlement offer. 

Retail shareholders who had been on the register of Bega Cheese as of 30 November 2020, have the opportunity to subscribe for the retail entitlement offer at the same offer price and ratio as under the institutional entitlement offer.

Lion Dairy & Drinks’ Acquisition

A binding agreement was executed to acquire Lion Dairy & Drinks for $534 million. Bega Cheese has projected to incur a total cost of $668 million for the transaction. 

The total cost includes stamp duty and acquisition transaction costs of $42 million, capital raising and funding costs of $11 million, upfront integration costs of $21 million, and transition and separation costs of $60 million. 

The management stated that the transaction delivers synergies across the entire supply chain and important industry consolidation. It also aids to create a ‘great Australian food company’ through the expanded product range, brands, distribution and manufacturing. 

Lion Dairy’s core business spans across milk-based beverages, yoghurt, chilled juices, cream, custard, and white milk. It also houses the nation’s largest cold chain distribution network and has manufacturing facilities across 13 sites. 

With the expansion of Bega Cheese’s branded food products portfolio, the transaction creates a large-scale dairy and foods business, building a highly complementary consumer packaged goods supply chain, and strengthening the core dairy footprint. 

The combined entity is expected to generate revenue of over $3 billion. Bega Cheese is expecting base case synergies of around $41 million per year and double-digit EPS accretion in FY22. It is committed to maintaining leverage below 2x over the near to medium term. 

Bega’s Trading Update

The company has highlighted that heritage brand performance and product innovation is driving strong retail sales performance. An organisational review is delivering headcount reduction and material savings in non-manufacturing costs. 

Infant formula sales have softened due to distribution challenges. Bega Cheese is comfortable to deliver the consensus normalised EBITDA forecast of $124 million (24 November 2020) from the core Bega business, excluding Lion Dairy. 



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