Bonlac sells brands

In the midst of a downsizing mission, major Australian dairy processor Bonlac Foods Ltd. is selling off two of its brand names to a subsidiary of British concern Cadbury Schweppes plc.

Under the terms of a proposed deal between the two, the Melbourne-based No. 2 Aussie cheesemaker, whose debts recently were reported at A$515 million (US$280 million), will receive A$30 million for its Spring Valley Juice and Wave UHT flavored milk brands.

Aussie subsidiary Cadbury Schweppes Pty Ltd. also is to gain leasing facilities carrying a current value of A$15 million, leaders of the U.K. company said. The deal involves only the product monikers and doesn't affect Bonlac's facilities, contracts and employees.

"This acquisition builds further on our strong beverages business in Australia through the addition of a leading premium juice brand and a high-quality flavored milk brand," Cadbury COO John Brock said. "Spring Valley and Wave will also benefit from access to our more powerful distribution system."

Launched in 1955, the 20-flavor Spring Valley Juice line enjoys a roughly 27% share of Australia's single-serve juice market in the convenience segment, Cadbury execs said. Wave has achieved a 5% market share in the flavored-milk segment since its 1999 debut.

Contract finalization is earmarked for the end of year, pending due diligence and any required regulatory approvals.

The move seems to signal a move by Bonlac to raise funds in the face of faltering finances. The company in October was knocked down a peg by credit-rating agency Standard & Poor's Corp.

Delays in a proposed merger with the New Zealand Dairy Board and a jump in prices paid to producers is hampering Bonlac's capability of paying back its debts, S&P said when it announced it had changed the processor's unsecured notes program from "BBB/A-2" to "BBB-/A3." (See related article).

Bonlac and NZDB agreed in April to pursue a US$295 million deal, in which the two companies would combine their Australian consumer businesses into a 50/50-owned joint venture.

NZDB would fold its Australian ingredients business into Bonlac and NZDB would obtain a 25% interest in Bonlac under the pact.

But the deal has been threatened by farmer-shareholders displeased with Bonlac management and they could keep the company from gaining the 75% majority shareholder vote needed to OK the plan. (See related article). Farmers have been expected to cast their ballots on the proposal this month or in December.

In July, Bonlac boosted by 16% the price it pays producers for their milk in an effort to keep them in the fold.

Concerned that its farmer-suppliers might jump ship and sell to the competition, Bonlac the previous month initiated a cost-slashing plan by firing 300 employees and closing four plants. (See related article).

The effort was intended to boost Bonlac's competitiveness so it could increase the price it pays producers, who have received roughly 20% less for their milk vs. competitors' reimbursement rates

Edited by Gerry Clark,
Managing Editor, Dairy Network.com