Australian dairy firm Bega Cheese has snapped up a 15% stake in local rival Warrnambool Cheese and Butter Factory (WCB).

Bega’s investment comes amid a wider equity raising by WCB to strengthen its balance sheet and raise funds for expansion.

WCB plans to raise a total of A$37m (US$37.1m) through Bega’s investment and the issue of up to 7.7m shares in its business – the latter dubbed an “entitlement offer”.

Some A$22.6m of that investment will come from Bega, WCB said today (10 November). Bega’s will buy 6m of the existing shares in WCB and then acquire some of the new shares to take its stake to 15%.

Under the plans, WCB and Bega will form a “strategic management group” to look at opportunities for “mutually beneficial actions”, WCB said.

WCB chairman Frank Davis said he welcomed Bega as a “cornerstone investor” in the business.

“Bega Cheese has a similar background to WCB and shares similar values, with both businesses committed to paying competitive milk prices to suppliers while generating a good return on shareholders’ funds,” Davis said. “We believe our two businesses are complementary and expect our management teams to identify many potential areas for co-operation to the mutual benefit of all stakeholders.”

Earlier this year, WCB saw off a hostile takeover attempt from a third Australian dairy co-op Murray Goulburn while there was also interest in the business from another, unnamed suitor.

Davis said the deal with Bega would allow WCB to cut debts and expand the business. “The cornerstone investment by Bega Cheese, together with the entitlement offer, will allow WCB to reduce significantly its debt and provide capital to pursue future growth options,” Davis said.

The agreement will also see Bega Cheese executive chairman Barry Irvin join the WCB board.

Irvin said he had been “impressed” with WCB’s turnaround after seeing “difficult trading conditions” 2009. “WCB represents a highly attractive opportunity to invest in the Australian dairy industry,” Irvin said.