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Retail Food Group (ASX: RFG) has entered an agreement to sell its Victorian cheese business to New Zealand-based dairy giant Fonterra (NZX: FCG) for $19.23 million.
The decision to sell Dairy Country, which will still be subject to Foreign Investment Review Board (FIRB) approval, was made after management concluded it did not align with the core business.
Dairy Country's processing plant in Tullamarine, Melbourne was temporarily shut down in July after three workers tested positive for COVID-19, although its Campbellfield facility was not affected.
The producer doesn't exactly make a motza for RFG, but its processed Mozzarella, Parmesan and Tasty cheeses have made it a steady earner and supplier for some of the group's foodservice operations.
"Dairy Country has represented a reliable past contributor to Group earnings, however, is no longer considered an appropriate fit with RFG's strategic intent to focus its resources on the Company's core retail food franchising and coffee businesses," says RFG executive chairman Peter George.
"The transaction facilitates the Company's exit from foodservice and manufacturing pursuits, providing the group with a less complex business model that enables RFG to dedicate its resources towards driving positive outcomes for its franchisee community, and building value for its wholesale coffee business following its FY20 restructure."
George adds that as a key Dairy Country business partner, Fonterra is a natural buyer for the subsidiary.
"Net proceeds from the sale will be applied to the extinguishment of Dairy Country's working capital facility (c.$13.7 million) and the further paydown of debt, freeing up future cash flows and providing RFG additional scope and capacity to respond to the unique set of challenges and evolving retail landscape attributable to COVID19 and its ongoing influence on trading conditions for the Company's business and franchise network," he says.
RFG's lenders have agreed to the transaction and settlement is anticipated by October.
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