Friday, 20 May 2011 13:02

Bega float could raise $375 million

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ONE OF Australia's oldest and largest dairy companies is tipping increased financial strength for shareholders and more development opportunities after it is publicly listed on the Australian Stock Exchange in July.

Shareholders of Bega Cheese Limited, Australia's fourth largest dairy company, have approved a constitutional change to allow an Initial Public Offering, with predictions that they stand to benefit from an influx of capital. Analysts have tipped the float to be worth around $375 million and say it could stimulate substantial investment in the Bega region.

Bega Cheese is working with its advisers and aims to have its prospectus lodged with ASIC before the end of May and to close the offer at the end of June – to enable a listing in early July.

In overwhelmingly approving the float with about 90% support, the company's 150 farmer-shareholders have also acted to protect Bega's local identity. Shareholding restrictions will be in place for at least five years, with options for a five year extension – and a majority of directors will be farmer suppliers.

Shares will be capped so that no shareholding can be greater than 5% and a minimum of four dairy farmers will fill the eight board positions.

Bega follows Warrnambool Cheese and Butter as another major player in the Australian dairy field to be publicly listed. Executive chairman Barry Irvin says the decision to list on the ASX was an important day in Bega Cheese's history.

Irvin says the listing will create a new level of financial strength for existing shareholders and "position Bega Cheese for opportunities that will inevitably come from further industry rationalisation and the ever growing international dairy market place".

Bega has annual revenue in excess of $800 million, key customers in dairy giants Fonterra and Kraft and a substantial export business into Asia and the Middle East. Irvin says the float will strengthen Bega's ability to respond quickly to development opportunities.

"We had gone as far as we could by using bank debt," he says. "There are no specific opportunities identified at this stage, but we will now be better positioned to move when they do come along."

Irvin believes most existing Bega shareholders will stay and use their cashed-up status to reinvest in their businesses.

"The initial reaction is they will stay and are very excited by this opportunity.

"We believe many shareholders will reinvest the money back into their business. They will be more financially secure and more likely to invest or expand, or look at succession planning."

He says it will give shareholders the opportunity to realise the value of their shares if they wish to take advantage of that.

"It will improve their financial strength and we believe improve the local economy."

Bega plans to retain all its production facilities and could use the extra funds to improve infrastructure or look at new markets.

"We see this as the right time to make the move," Irvin says. "There are limited numbers of food companies listed on the exchange, but there is increased interest in global food security and we believe there will be more opportunities and a period of growth."

Irvin says the "local flavour" of Bega will be retained.

"We will be a listed entity and will have shareholders not from our region, but we have safeguards in place to protect the balance and focus of our local culture."

Deputy chairman and local farmer Max Roberts says the co-operative structure has served Bega well, but has "run out of its useful life".

"Bega has always had a philosophy of creating wealth for its shareholders and this is a continuation of that philosophy," Roberts says. "It will be a tremendous release of value that has been built up over the past decade.

"It will be an enormous boost to the balance sheet for shareholders and we believe it will stimulate significant growth in the region. It has been very pleasing to see such a resounding positive vote for the listing."

Roberts says structures are in place to keep local ownership of Bega.

"A sale was never an option. As much as you can guarantee such a thing, we believe the shareholder cap and board structure will ensure local ownership continues."

Bega Cheese's corporate adviser David Williams, of Kidder Williams, says the company is still considering the quantum of the raising but was close to making a decision.

"Monies raised will be used for debt reduction," he says.

Williams says it is too early to speculate about potential share values.

"It will be a significant liquidity event for the region and will help Bega to be better prepared financially to respond to any rationalisation of the market.

"It will be a wealth provider for shareholders. Some might take the opportunity to exit the industry, but most will stick with it and use that money to reinvest."

In the past decade, Bega Cheese has grown to be the fourth largest dairy operation in Australia, and the largest cheese "cut and pack" operation in the Southern Hemisphere.

Bega employs nearly 1400 people at its NSW operations and at plants in Coburg, Tatura and Strathmerton in Victoria. In the year ending 30 June 2010, EBITDA was about $55m and revenue was $829m.

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