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By Colin Packham
SYDNEY, March 2 (Reuters) - Australian dairy group Warrnambool Cheese and Butter Factory Co Holdings Ltd said on Monday it will buy the cheese business of Lion Dairy for A$137.5 million ($107.3 million).
Warrnambool said the acquisition will allow it to increase it presence in the branded cheese market, with the deal expected to close by the end of May.
Warrnambool will assume ownership of Lion's everyday cheese brands, which include Coon, Mil Lel and Cracker Barrel, and will also take control of Lion's cut and wrap facility in Victoria.
Warrnambool, which is majority owned by Canada's largest dairy producer Saputo Inc, said last month it was on the lookout for more Australian acquisitions.
Lion, which is owned by Japanese brewer Kirin Holdings Co Ltd, said the decision to sell its cheese business was driven by a desire to move to higher valued products.
"We are focusing resources behind our biggest growth opportunities, which are in higher-value categories such as milk based beverages, speciality cheese and yoghurt," said Peter West, managing director, Lion Dairy & Drinks.
Saputo beat out two rival Australian groups to claim majority ownership of Warrnambool in January 2014. Lion holds a near 10 percent stake in Warrnambool and has rebuffed advances to sell out to Saputo.
$1 = 1.2814 Australian dollars Reporting by Colin Packham; Editing by Richard Pullin