The battle to buy Australian dairy Warrnambool Cheese and Butter Factory is shaping up to be one of the most intriguing takeover battles in the sector in recent years.
Okay, whatever deal is announced will be small beer when compared to the size of the sale of Heinz in February but the intrigue and the potential prize on offer means it has grabbed headlines internationally, not just Down Under.
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Two other Australian dairies Bega Cheese and Murray Goulburn, plus Canadian dairy giant Saputo, are all vying for WCB in bid to gain greater exposure to Asia’s booming demand for dairy.
At the time of writing (which is an important disclaimer, given how events are unfolding) all three suitors have made two bids for WCB. The latest revised offers have come this week from Murray Goulburn and, overnight, Bega Cheese – which are also both shareholders in WCB.
Bega was the latest to come to the table with what it called its “final offer”. The company says its latest cash-and-stock bid values WCB at A$8.871 a share – only making the second highest on offer.
Earlier this week, Murray Goulburn, responding to Saputo’s A$8-a-share all-cash offer, bid A$9 a share.
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By GlobalDataHowever, Bega’s offer is unconditional, meaning WCB investors can – if they wish – cash in now. Murray Goulburn needs the backing of over half of WCB’s shareholders and approval from Australia’s competition authorities. Three years ago, Murray Goulburn made a move to buy WCB, which was rejected by the company and was met with disquiet – even if no official decision – by Australia’s competition watchdog.
Saputo’s offer also has strings attached. It has secured the approval of the Australian government, through a green light from the country’s Foreign Investment Review Board, but it too needs a majority of WCB investors to accept its bid.
Announcing its final bid, Bega was bullish, pointing to its record of “consistent financial performance and shareholder returns” and “history of investing” in the companies it acquires.
However, WCB’s directors, which have so far only officially backed Saputo’s offers, gave an initial sniffy reaction to Bega’s cash-and-shares bid.
They said the share component of Bega’s offer made the bid uncertain. They also pointed to a 40% jump in Bega’s share price since the company made its first bid in September and said: “There is no guarantee the price of Bega shares will continue to trade at current levels.”
WCB’s backing for Saputo came, it said, in the absence of a higher offer. As things stand, Murray Goulburn’s A$9-a-share cash bid is the most lucrative on the table. WCB has yet to officially give its verdict on that offer, saying its directors would meet soon to discuss it. WCB’s only official specific statement on Murray Goulburn’s interest came after that company’s first bid. WCB said it was “uncertain” Murray Goulburn could satisfy the condition of the offer that was related to the competition authorities.
Murray Goulburn needs a statement of no objection from the Australian Competition and Consumer Commission or a granting of authorisation from the country’s Competition Tribunal. No decisions have been made. However, two weeks ago, the chairman of the ACCC reportedly said a Murray Goulburn takeover of WCB could be a “concern”.
The stakes for Murray Goulburn are relatively high. Earlier this month, before Murray Goulburn’s second bid, Jo Bills, director of dairy analysts Freshagenda, told just-food: “Murray Goulburn recognise the need to achieve greater scale to be competitive and relevant, both domestically – with two large retailers – and globally – with large customer and competitors.
“And it’s not just the competition in the product market place either – Murray Goulburn as with all the manufacturers here are under enormous pressure to growth or at least maintain their supply base. There is a great deal of farmer mobility between companies in this region, and a cashed up Saputo that wants a growing supply base for its Asian ambitions would be a formidable competitor – Murray Goulburn would feel its own supply base under some threat.”
The obvious question is: what now for Saputo? The company has eyed Australia for a decade and also sees WCB as a way of providing it with a platform to expand into Asia. “This opens doors for us. It is about the domestic Australain business, but it is also about Asia,” Saputo COO Kai Bockmann told just-food in the wake of its first bid for WCB. Asia is one of the great prizes for dairy processors with international ambitions.
Could Saputo walk away, with the bidding racheting up? That is possible; Saputo could of course look to enter Asia via other avenues, investing in local players, for example.
However, it appears Saputo could have the financial firepower for another bid. Writing after Saputo made its second offer, Canadian analyst Michael van Aelst wrote: “Of the three bidders, we believe that Saputo has the greatest financial capacity by a wide margin, and possibly the most determination to complete this acquisition given the importance of securing an Australian platform to Saputo’s long-term export strategy.”
That said, the need to secure the backing of over half WCB’s shareholders could be a fly in the ointment. As well as its two main rivals for the business owning a combined 36% of WCB, Japanese food and drink group Kirin Holdings has, through local Australian dairy arm Lion, snapped up just under 10% of the business in recent weeks. If Saputo is serious about WCB, a serious offer is needed.
Furthermore, some farmer-shareholders on the WCB investor roster may be concerned at a foreign takeover of the business, even if the FIRB has backed it.
“A large part of the shareholding remains with either current or ex-suppliers – at least at 30 June we estimate farmers and staff represented 14 of the top 20 shareholders, and 25% of that group’s shareholdings. For some it may be about the money but for others it will also be about winning the hearts and minds of the true believers that want a positive long term outcome for the business,” Bills says.
WCB has said Saputo has made assurances about supporting its suppliers, retaining staff and the company’s corporate identity. There is, however, the broader debate about strong Australian businesses securing a share of the Asian dairy prize and some commentators support a Murray Goulburn takeover.
Industry watchers now await Saputo’s next move. Will it return again to try to win over WCB’s shareholders?
