Sale of dairy farms secures 10yr milk supply and strategic funding for Beston Global Food Company
Aurora Dairies plans to acquire Beston’s dairy farms for $40.4 million in cash.
Melbourne’s Aurora Dairies is set to acquire the South Australian dairy farm interests of Beston Global Food Company (ASX: BFC) in a $40.4 million cash deal announced today.
The sale includes water licences and all other operating assets relating to four farms in the Mount Gambier region over 15.46 square kilometres, with a cumulative dairy cow herd of 3687 including dairy replacements.
Beston put the farms on the market in January through an international tender process on “buy and lease back” terms, in an effort to reduce its bank debt and reset its balance sheet gearing from 49% to 15%.
Strategic expansion
Proceeds from the sale will allow Beston to focus on the strategic expansion of its mozzarella and dairy nutraceuticals production lines including lactoferrin, which is a high-value dairy protein known for its use in infant formula to provide bioactive properties which mimic breastmilk.
The product is used in a range of dairy foods, dietary supplements and pharmaceutical goods including respiratory medications, cosmetics and oral hygiene products.
An increase to Beston’s production of lactoferrin could potentially add $6 million to the company’s earnings before interest, taxes, depreciation and amortisation, with a 24-month payback.
Terms of sale
Under the terms of the proposed sale to Aurora, Beston will receive 100% of milk supply from the farms – which currently equates to around 17 million litres per annum – over a 10-year period, with an option to extend.
Beston chairman Dr Roger Sexton said the transaction achieves the strategic objectives of releasing capital for re-investment in higher-returning dairy factory assets, while securing long-term milk supply.
“The sale of our dairy farms is an important milestone which continues our journey toward a streamlined, cash-generating company,” he said.
“The farms allowed us to secure milk supply during our start-up phase [but] Beston is no longer reliant on owning them due to our long-term milk supply contracts with independent farmers.”
He said the transaction would ensure continuity of milk supply to Beston’s cheese production facilities at Murray Bridge and Jervois and continue the focus on “increasing output and improving efficiencies” across the business.
At mid-morning, shares in Beston Global Food Company were trading 36.36% higher at $0.075.