The board of the Warrnambool Cheese and Butter Company (WCB) has leapt into the arms of a big Canadian dairy group in an effort to escape the clutches of local rival, Bega (BGA).
Warrnambool directors said yesterday that they accepted a deal with Canada’s biggest dairy group, Saputo, rather than accept the Bega Cheese offer launched around a month ago.
Saputo of Canada is offering $7 cash, compared to the 1.2 shares and $2 cash offer per share from Bega, which valued Warrnambool at $5.78 (or around $319 million).
The Bega offer is now worth $6.20 a share, so the Saputo cash offer isn’t all that big a premium.
Saputo wants to use Warrnambool as the base for expansion into Asia, something it has been unable to do from Canada.
The news boosted Warrnambool shares to $7.18, up 11.1% or 74c, while Bega shares eased 8c or 2.2% to $3.50 as investors bet that it would lose out.
WCB Vs BGA 6-Month – BGA dips, WCB higher on foreign bid
It is the second time lucky for Saputo as it bid for Warrnambool back in 2009 by offering around $4 a share, and then found the huge Murray Goulburn Co-operative came with a $3.80 a share offer, only to find Warrnambool’s board rejected both as inadequate.
In view of the current bidding war, that was a sound decision for Warrnambool shareholders who now include Murray Goulburn and suitor, Bega.
News of the rival suitor from offshore came after Warrnambool directors went through the usual role playing in a hostile bid, telling shareholders not to sell, bad mouthing the Bega offer and then rejecting it.
Yesterday they came back with another standard play, the rival offer, this time from a company which claims to be in the top 10 dairy groups globally.
The appearance of Saputo is likely though to raise temperatures in rural areas, as sentiment against foreign buying of Australian rural assets continues to rise with the ongoing angst over the bid for Graincorp from US group, Archer Daniel Midland (ADM). That bid is on ice until mid – December after Federal Treasurer Joe Hockey couldn’t produce a decision last week. He then delayed his decision until December 17.
The Saputo bid is a standard one and conditional on Warrnambool receiving a better offer and also contains a minimum 50% acceptance level (which can be varied though).
But even if Bega was to boost its offer past $7 you’d have to wonder if the Warrnambool board would recommend it because of the moaning and groaning since the offer was revealed on September 12.
Rather than accept the logic of forming the largest local dairy company (with combined sales of $1.5 billion a year), the Warrnambool board has grabbed a foreign offer with both hands.
But because Bega owns 17% of Warrnambool and another local operator Murray Goulburn has around 18%, Warrnambool’s board is happy to tell other shareholders to accept the Saputo offer, while keeping a minimum acceptance condition of 50%, which means they reckon they don’t need the shares held by the two local rivals.
In any case, Murray Goulburn is under pressure from a high debt bill and might be encouraged to accept the $7 a share cash offer from Saputo.
The offer minimum acceptance condition of 50% means Warrnambool could remain a listed company for the moment.
It is a sign of just how far Warrnambool’s board wants to avoid being snapped up by Bega. Bega would be a seller if Saputo got a holding of over 50% because the value of its shares would fall.
Saputo is Canada’s largest dairy group. Fonterra, the NZ giant, is the world’s biggest and it has a strong marketing association with Bega, which could come in handy if there’s bidding war.
Warrnambool directors justified their acceptance of Saputo’s offer which is only an 11% premium to the current value of the Bega offer.
‘‘Saputo’s offer underscores the strategic value of WCBs assets and vindicates the board’s decision to reject Bega’s inadequate, highly conditional offer,’’ Warrnambool said.
‘‘Saputo’s all cash offer provides greater certainty for WCB shareholders and a substantial premium for their WCB shares.’’
Saputo initially approached WCB about a takeover in October 2009 at an undisclosed price, which was below $4 a share.
Two months later, Saputo increased its offer to $4, and a few days later WCB rival Murray Goulburn arrived with a $3.80 a share cash takeover proposal of its own.
Both offers were rejected, with WCB saying they were too cheap. The ACCC has blocked Murray Goulburn from bidding because of competition reasons.
Bega swooped and picked up its 17% stake, and is now likely to boost that to around 20% and start pressure for a board seat.
