The shares of Bega Cheese Ltd (ASX: BGA) will be on watch this morning after the dairy company announced the $460 million acquisition of the majority of Mondelēz International's Australia and New Zealand grocery and cheese business.
The deal means Bega will soon add the iconic Vegemite brand to its arsenal, as well as brands including ZoOSh salad dressings and Bonox beef extract.
Furthermore, the company will acquire the license for Kraft products such as peanut butter, nut spreads, processed cheese slices, ambient cheese spread, mayonnaise, and parmesan cheese until December 2017. Management has a brand rationalisation and transition strategy in place to support these businesses once the license expires.
Bega will also take control of Mondelēz's world-class manufacturing facility in Port Melbourne. The 6.3 hectare site has five highly automated production lines and room for volume expansion.
Importantly the newly acquired business is expected to be strongly earnings accretive. In the first full year of operation management expects the acquisition to generate pro-forma net revenues of $310 million and earnings before interest, tax, depreciation, and amortisation of between $40 million and $45 million.
Although it will be funded by bank debt, management says it has near-term corporate opportunities to pay down debt. However it has warned that if these opportunities are unsuccessful a capital raising may be considered at a later date.
I think this is a great acquisition and would expect to see the market react positively to the news this morning. As well as being iconic, the Vegemite business has strong cash flow generation and a large share of the growing spreads market.
With its shares down 34% in the last 12 months and changing hands at 22x trailing earnings, I feel this acquisition could mean Bega is worth a closer look.
My preference in the dairy industry is still a2 Milk Company Ltd (Australia) (ASX: A2M), but Bega wouldn't be too far behind now.
