Media Updates, page-13376

Sources said private equity shops Adamantem Capital, Allegro Funds, Anchorage Capital Partners and CPE Capital put in offers. However, the indicative bids failed to meet the vendor’s price expectations.


Sources reckon the asset is likely to be acquired by one of the smaller strategic buyers, with the likes of Bega understood to have swerved the auction.

New Zealand dairy giant Fonterra is a key supplier to Dairyworks which makes $25 million to $30 million EBITDA. Local supermarkets Countdown (Woolworths NZ) and Foodstuffs are key customers. Dairyworks has also entered the Australian market, imported from NZ via Woolwroths. The business is understood to be in discussions with Bega for additional contracts.

Jarden was brought on earlier this year to advise on the sale of Synlait’s consumer foods businesses Dairyworks and Talbot Forest Cheese. At the time, Dairyworks was expected to fetch up to $130 million. Sources told Street Talk that if Synlait can’t sell Dairyworks – considered a strong business – the company may have to raise capital.

Analysts have been keeping a close eye on the Dairyworks sale. In a September research note, Bell Potter’s Jonathan Snape said releasing value from Dairyworks is essential to turning around the company’s souring share price – down 62 per cent this year.

Its annual results outlined a challenging set of numbers including an 18 per cent fall in EBITDA. Net profit after tax fell to $NZ2.5 million from $NZ38.5 million last year. Net debt is at $NZ413 million and over the next 18 months, Synlait is locked in to repay $NZ130 million of bank debt and $NZ180 million of retail bonds. Management declined to issue guidance.

Snape estimates that at a $NZ116 million net asset value, the sale would bring Synlait’s net debt/EBITDA from around 4.3-times to around 3.9-times in FY23.

Forsyth Barr analyst Matt Montgomerie also has a close watch on Synlait’s debt levels, describing its balance sheet as an “area of concern”.

“Looking ahead, should the Dairyworks sale occur, we believe the risk of equity raising is low,” he said in a research note. “However, should the sale not proceed or if timing slips, a capital raise cannot be ruled out — we forecast pro-forma net debt of around $NZ360m and net debt to EBITDA of 3.0-times versus Synlait’s covenant of 3.50-times.”

Synlait management is confident of the Dairyworks divestment in the next 12 months. Naturally, the company has other assets it could tap – manufacturing sites in Auckland, Pokeno and Beijing-approved Dunsandel.

All this is happening against an escalating feud with A2 Milk, which cancelled the exclusive supply arrangement for infant formula it has with Synlait in September. Synlait has pledged to fight the action and entered a binding arbitration process with A2 in mid-October.