Saputo Back in Trademark Buying Mode With Murray Goulburn Deal

(Bloomberg) -- With a $1 billion deal half a world away, Saputo Inc. returned to the wheeling and dealing that’s propelled the Canadian cheesemaker’s growth for decades.

The Montreal-based company agreed to acquire Australia’s biggest dairy processor, adding to its operations Down Under after taking full ownership of Warrnambool Cheese & Butter Factory Co. this year. Outside of its home market, Saputo also has factories in Argentina and the U.S.

The Murray Goulburn deal gives Saputo a bigger footprint in Australia to help meet rising dairy demand in Asia. China’s whole milk powder imports surged in the past decade after a melamine scandal crippled consumers’ trust in locally-made infant formula, and local production failed to keep up with demand. Japan is the world’s largest cheese importer, with purchases forecast at a record this year. Asia accounts for about 80 percent of Australia’s dairy exports.

It “is a strategic acquisition for Saputo, adding sizeable scale, strong domestic brands, and a robust Asia export presence to Saputo’s already attractive Australian operations,” Michael Van Aelst, an analyst at TD Securities, wrote in a research note Friday. The price “is not unreasonable considering the potential upside of Murray Goulburn assets in the hands of Saputo management.”

The stock climbed 3.8 percent to C$46.63 at 9:50 a.m in Toronto, its biggest jump in three months. The stock is still down 2 percent this year, reflecting investors’ concern over the outcome of talks to overhaul the North American Free Trade Agreement with the U.S. and Mexico.

Saputo is the success story of a Sicilian immigrant in 1950s Quebec, who saved his first job’s paychecks to start a family business for his father, a cheesemaker. Six decades later, the company is one of the world’s largest cheese and dairy processors, with annual sales of more than $8 billion. Its founder Lino Saputo is one of Canada’s richest men.

Canada’s largest dairy processor beat suitors that were said to include Inner Mongolia Yili Industrial Group Co., Kirin Holdings Co.’s Lion Pty unit and China Mengniu Dairy Co. Australian producer Bega Cheese Ltd. said Thursday it was no longer a potential buyer. Units in Murray Goulburn’s listed entity soared as much as 14 percent on Friday before closing 1.2 percent lower.

The Australian cooperative has under-performed global peers after it cut the price it pays dairy farmers and milk production fell. It reported a A$371 million net loss in the financial year that ended in June. The company and adviser Deutsche Bank AG had received several unsolicited indicative proposals earlier this year after announcing a strategic review.

Succession

Lino Saputo was succeeded as chief executive officer in 2004 by his son Lino Jr., who began working at the company after school from the time he was 13. In August, the founder retired as board chairman after turning 80, delivering a speech during which he regaled shareholders with anecdotes about the company’s milestones.

Saputo offers ingredients including milk powder and whey protein -- a by-product of cheese making that’s often sold as a dietary supplement. It produces a third of Canada’s cheese and is among U.S. leaders in extended shelf-life goods, such as ice-cream mixes. Its facilities in Argentina and Australia, where it is expanding capacity, ship to emerging markets. The U.S. and its two dozens factories serve as a secondary exports base.

The company grew its global footprint with more than 25 acquisitions since going public in 1997. Including the Murray Goulburn deal, which is subject to regulatory and shareholder approval, that’s about $5 billion worth of purchases. Saputo Jr. has indicated he sees opportunities in the U.S., which he has described as a very fragmented market, as well as Europe.

Saputo is one of several companies, including technology-service provider CGI Group Inc. and Circle K owner Alimentation Couche-Tard, that turned from modest Quebec beginnings into domestic or multinational empires. Saputo shares returned about 1,700 percent since its initial public offering, more than 10 times the gain of the benchmark S&P/TSX Index.

--With assistance from Crayton Harrison

To contact the reporters on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net, Edward Johnson in Sydney at ejohnson28@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Phoebe Sedgman

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