Talley's fuels Oceania dairy deal spree

Talley's Group launched an offer to raise its stake in Open Country Dairy, New Zealand's second ranked dairy processor, in the latest sign of the acquisition drive surrounding the industry in Oceania.

Talley's Group, the family-owned seafood to vegetables group which already owns 55.5% of Open Country Dairy, revealed an offer to raise its stake in a deal valuing the dairy processor at NZ$320m ($263m).

Already Olam International, the Singapore-based agricultural trading giant which owns nearly 25% of Open Country Dairy, said it would tender up to 14.99% to the offer, gaining up to NZ$46.5m from the sale but leaving itself with at least a 10.0% stake, and avoiding being squeezed out of the group.

"Based on the terms of the agreement, the effective sale price of Olam shares in Open Country Dairy is expected to be at or above the current carrying value of its Open Country Dairy investment," Olam added.

String of deals

The takeover deal comes amid a boom time for the dairy industry, enjoying near-record dairy commodity prices thanks to soaring demand from importers such as Russia and, in particular, China, whose own milk producers are failing by a distance to keep up with soaring consumption.

Besides increased wealth, and the spread of a refrigerated food distribution network, China's dairy demand is being fuelled by a surge in infant formula demand as mothers take an increasing place in the workforce.

And Oceania, and in particular New Zealand, with its export volumes and proximity to China is proving well placed to fulfil this demand.

The market conditions have attracted a spate of deals, with China's Shanghai Pengxin Group buying 16 New Zealand dairy farms last year, and on October unveiling a deal to buy control of Synlait Farms, which owns 4,000 hectares of farmland and some 13,000 dairy cows, and is a supplier to processor Synlait Milk.

In September, the 27,000-hectare Mount Pember station, whose operations include dairy support, was sold to North American investors, for a reported NZ$30m.

Meanwhile, Australia's Warrnambool Cheese & Butter has agreed a takeover by Canada's top processor, Saputo.

'Will release cash'

However, for Olam International, the sale of some of its Open Country Dairy stake offers the chance to raise cash, following some investor criticism, led by activist investor Muddy Waters, over the sustainability of borrowings run up during a multi-year expansion drive.

"The transaction will release cash for Olam while still maintaining product off-take arrangements with Open Country Dairy, which are strategically important for Olam's dairy supply chain business," a company statement said.

The deal was revealed after the close of Singapore markets, where Olam shares closed up 1.0% at Sing$1.51.

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