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PRINT EDITION
Saputo's push Down Under shows how far the company has come
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By KONRAD YAKABUSKI
  
  

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Friday, November 10, 2017 – Page B1

Lino Saputo Jr. is in Australia this week and next in an attempt to sell dairy farmers there on his company's $1.3-billion bid to buy the country's second-largest milk processor. The deal for the Murray Goulburn Co-operative would leave Saputo with fully a third of the Australian milk market it first entered in 2014 when it took control of Warrnambool Cheese and Butter.

Earlier this year, Saputo bought out the minority shareholders of Warrnambool, Australia's fifth-biggest dairy producer. The deal it struck last week to buy Murray Goulburn would see Saputo battling for Down Under dairy supremacy with New Zealand's giant Fonterra co-op. Both dairy titans have been bulking up in Australia to supply the ever-thirsty Chinese market.

The 16,000 kilometres separating Saputo Inc.'s Montreal head office and its operations Down Under are but one indication of the distance the company has travelled since it went public 20 years ago this fall.

Back then, Saputo had already carved out a local niche for itself as Canada's biggest producer of mozzarella. But its modest $450-million in annual sales meant it remained but a curd among the truly big cheeses of the global dairy market, such as Nestlé or Danone.

By 2016, Saputo had become the world's ninth-biggest dairy processor, with sales of $11-billion. With little debt and a seemingly insatiable thirst for acquisitions, it may not be long before it climbs into the top five. Not bad for a cheese maker founded by Sicilian immigrants to Montreal's Little Italy in 1954 with a delivery fleet that then consisted of a single bicycle.

Led by patriarch Lino Saputo Sr., who stepped down as chairman this year at 80, the Saputo clan has amassed Quebec's biggest fortune, and Canada's fifth-biggest, with a net worth estimated in 2017 at $10.4-billion. And they've done it without relying on multiple-voting shares to insulate themselves and management from takeovers or pesky minority shareholders, providing a true lesson in survival of the fittest to the owners of Bombardier, Power Corp. or Quebecor.

The Saputos have also been outstanding corporate citizens and champions of Montreal. The family has a majority stake in the Montreal Impact Major League Soccer team, which had a horrendous 2017 season.

But president Joey Saputo is hoping the team can bend it like Beckham in 2018 with a new coach, this week hiring former Olympique Lyonnais coach Rémi Garde for the job.

Lino Saputo Jr., 51, who this year also became Saputo chairman (he's been CEO since 2004), has been working in the family business since he was 13. He started out mopping floors before learning the art and science of industrial cheese-making. He had risen to vice-president of production by the time Saputo went public in 1997, overseeing six factories in Canada and two in the United States. That portfolio has grown to 51 plants on three continents. Half of Saputo's business in now in the United States, a third in Canada and the rest in Australia and Argentina.

Since Saputo went public, its stock price has risen about twentyfold, controlling for splits, delivering a compound annual return of about 16 per cent. Of late, uncertainty over the fate of the North American free-trade agreement and the future of Canada's supply-managed milk market has been a drag on its share price, as has the deflationary environment afflicting the global dairy sector.

But if Saputo has demonstrated anything, it is its ability to succeed in any regulatory environment. It is undaunted by the prospect of an end to supply management, just as it is by the price swings it must deal with in the deregulated U.S. and Australian milk markets.

Murray Goulburn is itself a victim of Australian deregulation. Processors there bid fiercely for milk supply and MG, as its known, has lost half of its supply in the past couple of years to competitors such as Fonterra and Saputo's own Warrnambool unit.

Some of its processing plants are operating at barely 50-per-cent capacity. Where others see a hopeless case, Mr. Saputo sees a fixer-upper. But he must first persuade the farmers who own shares in MG to tender them, hence the roadshow he started this week in Mount Gambier (population 30,000) and will wrap up next week in Tasmania.

Saputo must also win the approval of Australian competition authorities, as well as the country's Foreign Investment Review Board. It will have an easier time clearing the first hurdle than Fonterra, whose bid was rejected by MG's board in favour of Saputo's. Saputo also beat out at least five Chinese or Chinese-backed bids for MG, all of which faced potential political opposition.

Not so for the Big Cheese from Canada.


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