Saputo acquires Bega Cheese's stake in Australian dairy company Warrnambool Cheese & Butter, now owns more than 45% of WCB with several days remaining before close of Saputo's AU$500M-plus takeover offer for company

Nevin Barich

January 16, 2014 (The Australian) – CANADA'S Saputo is on the verge of gaining control of Warrnambool Cheese & Butter after major shareholder and one-time bidder Bega Cheese begrudgingly accepted its $9-a-share offer.

Following a fiercely fought, three-way takeover battle that has extended into a fourth month, Saputo, one of the world's top 10 dairy players, now has more than 45 per cent of the Victorian-based dairy processor.

And with several days still remaining before the $500 million-plus offer closes, it is widely anticipated that Murray Goulburn and Lion -- Warrnambool's two remaining substantial shareholders -- will follow Bega's lead, pushing Saputo's stake above 50 per cent, potentially triggering higher offer payments to investors.

Murray Goulburn is particularly under the spotlight. The ambitious local co-operative will need to decide whether to abandon its own $9.50-a-share proposal to merge with Warrnambool and instead accept into Saputo's bid. Murray Goulburn's bid has yet to be cleared by the Australian Competition Tribunal.

However, even if it does opt to pursue its own offer, it would be unlikely to satisfy a key condition of the offer, which is 50.1 per cent minimum acceptance from Warrnambool investors.

Murray Goulburn released a statement yesterday noting Bega's acceptance. It said it would assess the ramifications of the development to its bid as well as its 17.7 per cent stake and would ``continue to monitor the situation as it evolves''.

The Japanese-owned Lion, which owns 9.9 per cent of Warrnambool following a share raid late last year, is also understood to be considering its position.

While Saputo chief executive Lino Saputo Jr was unavailable for comment yesterday, his local adviser welcomed Bega's decision to sell. ``We're obviously very pleased that Bega has announced it will sell into Saputo's offer and expect many other shareholders will follow Bega's lead,'' Rothschild managing director Sam Prentice said.

WCB chief executive David Lord also urged shareholders who had been holding out to accept Saputo's offer to maximise its value of the board-endorsed bid.

Under the Saputo bid, shareholders stand to make an additional 20c a share should Saputo achieve acceptances of greater than 50 per cent, 75 per cent and finally 90 per cent -- potentially lifting the bid price to $9.60.

``There are incentives built into the offer that ensure all shareholders will enjoy those incremental increases in the offer price. So it's really in the interests of all shareholders that they now get on board,'' Mr Lord told The Australian.

``We're pleased that Bega has reached its own conclusions . . . in terms of the value and the certainty of Saputo's offer.''

It was Bega's own tilt at Warrnambool in September last year that kicked off the takeover battle. Its overtures were rejected and it later withdrew from the running. But the subsequent bidding war for the regional dairy processor whose profitability has been declining has highlighted the growing appetite internationally for Australia's dairy assets.

Bega itself became the subject of takeover speculation throughout the process, which was compounded when New Zealand export giant Fonterra took a substantial stake in the group.

Bega chairman Barry Irvin said yesterday that the company was disappointed it had been unable to realise its vision to combine the two companies.

And while he would have preferred for Warrnambool to remain in local hands, he said he was conscious of the significant value of the Warrnambool shareholding as well as obligation to Bega's own shareholders to make sensible investment and capital management decisions. Bega will receive between $94.7m and $101m for its 18.8 per cent stake, reaping a pre-tax profit of up to $68.2m on its original investment made in mid-2010.

Mr Irvin said it was a ``large amount of money'' to put at risk when the outcome of Murray Goulburn's tribunal application and the likelihood of its competing offer materialising remained uncertain.

He confirmed that discussions with other parties interested in Bega's holding in Warrnambool had not produced any firm offers. ``Bega Cheese's investment in Warrnambool Cheese & Butter has been a resounding success for both companies,'' he said.

``The objective of our takeover offer for Warrnambool Cheese & Butter was always focused on improving returns for our shareholders and our dairy farmer suppliers. While our bid was not successful, our focus remains the same.''

Mr Irvin said the Bega board would now assess options for the capital windfall, which could include strategic business opportunities, including acquisitions, or the fast-tracking of several capital expenditure projects.

Bega's adviser, David Williams of Kidder Williams, said he anticipated the hedge funds on Warrnambool's register to sell into Saputo's bid in the coming days, lifting its stake above 50 per cent. After that, Murray Goulburn and Lion would have little choice but to also accept, he said.

Bega shares closed 1c higher at $4.62, while Warrnambool shares gained 12c to $9.40.

(c) 2014 News Limited

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