The Bega Cheese Ltd (ASX: BGA) share price has returned from its trading halt and is surging higher on Friday.
At the time of writing, the food company’s shares are up 10% to $5.57.
Why is the Bega Cheese share price surging higher?
Investors have been buying the company’s shares this morning after it completed the underwritten institutional placement and the institutional component of its 1 to 4.5 pro-rata accelerated non-renounceable entitlement offer.
This will allow the company to push ahead with its plan to purchase Lion Dairy & Drinks for $534 million.
Bega Cheese has raised approximately $284 million at a 9.1% discount of $4.60 per new share. This comprises $181 million via its placement and $103 million via its institutional entitlement offer.
It will now push on with the retail component of the entitlement offer, which aims to raise a further $117 million. This will bring the total raised to $401 million.
Bega Cheese has agreed to acquire Lion Dairy & Drinks for $534 million. This will expand its offering with a whole host of popular brands.
These include milk-based beverages such as Dare and Farmers Union, Yoplait yoghurts, Pura milk, and Juice Brothers juices.
In addition to this, Lion Dairy & Drinks has Australia’s largest national cold chain distribution network supplying food service and convenience stores. It also has a national manufacturing footprint comprising 13 sites.
Management expects the combined business to generate annual revenues in excess of $3 billion. This compares to the revenue of ~$1.5 billion Bega Cheese generated in FY 2020.
The acquisition is expected to generate significant synergies. Management’s base case is for synergies of $41 million per annum. This is primarily from milk network optimisation, indirect procurement, and a corporate reorganisation.
In light of this, the deal is expected to be double digit earnings per share accretion in FY 2022.
Upon announcing the deal, Bega Cheese’s Chief Executive Officer, Paul van Heerwaarden, commented: “We are very pleased with the performance of acquisitions made in recent years which are achieving or exceeding our profit targets. The recent company restructure and ERP implementation will allow us to integrate this Acquisition and take advantage of the various synergies and growth opportunities across domestic and international markets.”
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