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The Bega (ASX:BGA) share price is trading lower on “significant day”

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On Monday afternoon the Bega Cheese Ltd (ASX: BGA) share price is trading lower despite the release of a positive announcement.

At the time of writing, the diversified food company’s shares are down slightly to $5.34.

What did Bega announce?

This morning Bega provided a market with an update on the acquisition of the Lion Dairy & Drinks business.

According to the release, the $534 million acquisition has now completed successfully and Bega has taken control of brands such as Dare, Farmers Union, Yoplait yoghurts, Pura milk, and Juice Brothers juices.

In addition to this, this acquisition sees Bega take control of Australia’s largest national cold chain distribution network supplying food service and convenience stores.

What now?

Management expects the combined business to generate annual revenues in excess of $3 billion. As a comparison, Bega recorded revenue of ~$1.5 billion in FY 2020.

Furthermore, the acquisition is expected to generate significant synergies. Management’s base case is for synergies is $41 million per annum. This is primarily from milk network optimisation, indirect procurement, and a corporate reorganisation.

As a result, the company is expecting the deal to be double digit earnings per share accretion in FY 2022.

Bega’s Executive Chairman, Mr Barry Irvin, was pleased with the news and believes this is a big day for the company.

He commented: “Today is a significant day in the history of Bega, the acquisition of Lion Dairy & Drinks doubles the size of the company with revenue of $3 billion and brings together great brands including Bega Cheese, Vegemite, Dare, Farmers Union, Dairy Farmers, Yoplait, B honey, Big M, Masters, Juice Brothers and Berri.”

“This goal of creating a great Australian food company with the capacity to service our customers in Australia and around the world took a major step forward today,” he added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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