Beston Global Food Co. has gone into voluntary administration as a deal that might have saved the Australian dairy business has fallen through.
While the proposed “non-binding” transaction from Japan’s Megmilk Snow Brand Co. – for Beston’s cheese and lactoferrin production business in Jervois, South Australia – has been terminated, a myriad of other factors were cited for the decision.
In an announcement to the Australian Securities Exchange today (23 September) Beston blamed a burden from debt and rising interest rates; under-pressure margins; the surge in energy prices; cheap dairy imports into Australia from New Zealand, Europe and the US; and dairy code legislation introduced by the government in 2019.
As a consequence, KMPG was appointed as administrators on 20 September, around a week after the Megmilk Snow Brand transaction was announced and a matter of months since Beston sold its meat business, the Provincial Food Group.
Included in the administration process is the wholly-owned subsidiary Beston Pure Dairies.
Group CEO Fabrizio Jorge said the Megmilk “offer would have enabled all of the jobs at Jervois to be preserved and would have led to an increase in demand for milk for processing at the Jervois factory over time”.
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The filling added with respect to the failed deal and the pressures the business faced: “The directors have formed the opinion that Beston should be placed into voluntary administration and allow time to evaluate options for Beston.
“The board and management of Beston have been working through a plan to address these challenges, including by making a number of operational enhancements and by divesting Beston’s meat processing business.
“In response to various corporate actions initiated by Beston, Beston has received several non-binding indicative offers in recent months, around both debt refinancing and equity solutions relating to Beston’s core business of dairy and dairy nutrition.”
Beston said Megmilk Snow Brands pulled out of the proposed transaction on 20 September as it “became apparent that agreement could not be reached on the terms and conditions of a sale that was acceptable to all parties”.
The company said the Australian Dairy Code legislation introduced in 2019 has had “unintended consequences” in keeping farmgate milk prices at an acceptable level but “disconnected” from the global increases in prices of dairy commodities.
Beston explained: “The government regulated operating model between dairy processors and dairy farmers embodied in the Australian Dairy Code does not recognise the volatile nature of dairy markets globally, nor allow appropriate price signals to be captured through the movements in supply and demand and has contributed to the closure of 11 dairy processing businesses in Australia during the past 18 months.”
KPMG, meanwhile, will seek to explore options for a sale or recapitalisation of the business but Beston will continue to trade for the time being.
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