Korumburra based dairy processor Burra Foods chief executive Grant Crothers says he is confident the Foreign Investment Board will approve the sale of nearly 80 per cent of the business to a Chinese investor.
Burra Foods announced it would be selling a substantial part of the business, as part of its growth plans to improve market access, while raising capital to expand its Korumburra processing facility.
The agreement will see leading international ingredients business, Inner Mongolia Fuyuan Farming Co Ltd (Fuyuan), take a 79 per cent shareholding in Burra.
Mr Crothers, who will remain Burra chief executive, said he was aware of the impact of the failed Kidman sale, but was confident FIRB would give its approval to the Fuyuan deal.
”You can’t help that think that FIRB is a risk, but – with Kidman – the unique asset is a lot of dirt; we are a processing asset, with very little land, by very nature a very different asset,” Mr Crothers said.
“Until FIRB ticks it off, it’s not done, but I have no reason to believe they won’t – on their previous form, and comments, I have a very good chance of getting it through FIRB.”
Treasurer Scott Morrison last week all but rejected a consortium bid for the Kidman properties, led by the Chinese company Dakang, leading to its ultimate withdrawal.
Mr Crothers said the food processing industry had an extremely high level of foreign investment.
“This is another example. I expect FIRB to continue the habit of recognising manufacturing needs a lot of capital and the Australian market doesn’t seem to have the stomach for it.”
He remained coy about claims the sale was worth $300 million, saying the figure was “commercial in confidence” but it would lead to significant investment in the business.
“It was a valuation that shareholders thought was fair and reasonable,” Mr Crothers said.
Burra manufactures 60,000 tonnes of product a year and Mr Crothers said the capital injection would help with plans to grow to 100,000 by 2020.
The company has has more than 170 suppliers, processing 300 million litres of milk a year.
Mr Crothers said the deal was “a good fit.
“We are an ingredient company, effectively they are as well, they have a very transparent, highly accountable Hong Kong shareholder who gives them a leg up into the market.”
The largest shareholder of Fuyuan is China Mengniu Dairy, which manufactures and distributes dairy products throughout China.
Existing shareholders including Burra Foods’ founder, Grant Crothers and Japanese dairy distributor, ITOCHU Corporation have maintained a combined 21 per cent interest in the company.
Mr Crothers will continue as Burra’s chief executive
“The new shareholder structure will provide Burra Foods with vastly improved access to new high value milk and nutritional powder markets, facilitating low risk growth up the value chain, and access to additional capital,” Mr Crothers said.
“We have always been about maximising value from the milk solids we collect and process and have taken a very cautious approach to China, appreciating the significant risks that come with the increasing opportunities available.
“There are only winners in this deal as the new structure enhances the future for our loyal milk supply partners, provides ongoing employment for our dedicated staff, while ensuring increased and stable supply to our existing customers whether they are located in Australia, Japan, China or other parts of the world.”
The agreement was signed following an extensive strategic review process considering a number of ‘best fit’ opportunities.
Mr Crothers said Burra would now carry out an internal strategic review.
“Fuyuan’s business is very much a milk power market, unlike other markets, like Japan, which are not milk powder focussed,” Mr Crothers said.
”We are a b to b business - we don’t pretend to have b to c (business to customer) skills, that’s why investment by Fuyuan is synergistic, they are a regional leader in b to c – we see that as derisking our strategy.
“Significantly, the China space is very competitive, it is very volatile – regulatory volatile – and we don’t pretend to have the skills or DNA to manage that.”
Mr Crothers said Burra Foods would honor all customer supply agreements and was likely to look at taking on more farms, in the new financial year.
“I see the opportunity to grow supply base,” Mr Crothers said.
“We have had a few phone calls, as I am sure a lot of processors have, this past week and we will be looking at our financial year 17 numbers.”
