Alliance has paid $15 million for a 50% stake in Meateor New Zealand, in a joint venture with NZX-listed Scales Corporation. Meateor has been significant part of Scales’ food ingredients business.
It takes the southern meat processor and exporter up the value chain, creates new value for farmers and is a significant step in the co-operative’s value-add strategy, he said.
Meateor processes and markets high-quality pet food ingredients to global manufacturers and Alliance is a supplier of raw materials to the sector.
“We realised there was huge value in the fifth quarter of an animal in the pet food sector and we had to find a path into that market.
“We’ve supplied Scales with product and there has been a natural evolution,” he said.
Meateor has exciting prospects and for Alliance it was a case of one plus one equals three.
Most of Alliance’s food co-products will now go to the new joint-venture.
Alliance will fund the investment through debt and the 50% stake will add to earnings from the start.
“We’ve got a strong, robust business and won’t be asking our farmers for funding but the returns will go back to them,” Surveyor said.
The investment is just in the NZ Meateor business.
Scales has just bought a 60% stake in United States pet food manufacturer and marketer Shelby so Alliance can expect to benefit through Meateor’s links to that business.
The venture with Alliance is all about synergies and collaborating to catch value, Scales managing director Andy Borland said.
“We’ve been talking to them for a fair while and this is a good way to partner with a long-term player supplying raw material.”
Scales thought carefully about a joint venture model and decided it is the better way to go.
The deal values Meateor at $30m and the business has no debt.
After the deal settles in the next couple of weeks a new board will be put in place and a new general manager appointed for Meateor. Current general manager John Sainsbury will move up to a bigger role covering Meateor, food ingredients and the group’s relationship with Shelby.
Surveyor said the pet food sector’s global sales are expected to reach $134 billion by 2022.
“We want to make sure NZ farmers are part of that.”
Meateor has processing plants in both the North and South Islands.
The joint venture will extend Alliance’s downstream reach and allow it to be come vertically integrated, with an end-to-end connection to the market.
Food ingredients had $83m in sales and operating earnings (Ebitda) of $11m in Scales’ latest December year. The Meateor earnings are not broken out in the published accounts but it is a major part of the division.
At its September 30 balance date Alliance had total assets of $519m and borrowings of $84m for a lowish interest-bearing debt ratio of 16%.
However, it will be pleased Meateor is already profitable because its own interest costs last year of $8m took up more than half of the Ebit operating earnings of $14.35m.
The $15m being paid to Scales will add to the company’s firepower for further investments, likely to include more in the pet food sector.
It will be in a very strong net-cash position when the eventual sale of its Polarcold business brings in more than $150m in cash. The sale to an American buyer is subject to approval from the Overseas Investment Office.
