Canadian cheese giant Saputo Inc. announced Monday that it will buy Dairyworld Foods. Saputo will use bank borrowing to finance the $407-million deal.

"The Dairyworld transaction is a key strategic step towards our objective of becoming a leading player in the North American dairy industry," said Saputo president and COO Camillo Lisio in a release.

"It also diversifies the product range in Saputo's core business. Dairyworld's seasoned team will strengthen our group and will contribute significantly to our growth."

Saputo chair and CEO Lino Saputo said the purchase of Dairyworld puts Saputo on the "forefront of the Canadian dairy industry and we intend to work with all industry participants so that together we can successfully face the challenges that lie ahead."

Saputo is buying the fluid-milk and cheese operations of Agrifoods International Cooperative Ltd., commonly known as Dairyworld Foods. The deal must be ratified by the cooperative's membership in January and is also subject to approval from the Competition Bureau.

Dairyworld Foods has annual sales of $1.4 billion and employs 3,200 people at 24 plants across Canada. The company produces milk, yogurt, cheese, butter, skim-milk powder, juices and food ingredients.

Saputo Inc. manufactures dairy and grocery products. The company employs 5,250 people at 15 dairy product plants in the U.S., and at 11 plants and 17 distribution centre in Canada. It produces mozzarella, other Italian, European and North American cheeses, and lactose and whey protein. Saputo's dairy brands include Saputo, Stella, Frigo, Dragone, Caron and Cayer.

In its grocery division, it operates five plants in Canada, 53 warehouses and five distribution centres. Saputo manufactures and distributes snack cakes, cookies, fine breads and soups, under Vachon, Viau-McCormicks, Grissol and Loney's.

Saputo's shares gained $3.25 to $36 on Monday.