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Dairy Crest receives bid from Canadian peer

The owner of brands such as Cathedral City cheddar and Clover spread has received an all-cash takeover offer from Saputo Dairy
February 22, 2019

Directors at Dairy Crest (DCG) have unanimously recommended an all-cash offer for the company made by Saputo Dairy. The Canadian dairy company is offering £975m for Dairy Crest’s equity or 620p a share, which represents a premium of 11.7 per cent to the closing price prior to the announcement and a 27.1 per cent premium on the 30-day volume weighted average share price. The deal would be Saputo’s first in Europe. It believes Dairy Crest would provide an “attractive platform” for further UK growth, while Saputo’s international presence will allow Dairy Crest to accelerate its own growth plans. Saputo operates from 62 plants in more than 40 countries.

IC TIP: Hold at 627p

Analysts at Jefferies called the bid multiple of 13.1 times expected FY2019 cash profits “robust” for a UK foods business in light of recent transactions such as Weetabix for 11.8 times, United Biscuits for 10.8 times and Iglo for 8.5 times. That said, some shareholders may feel this undervalues the company, considering the shares were trading around 600p in the middle of 2017. Saputo has also assured that the takeover will not adversely affect Dairy Crest's defined-benefit pension scheme.