WCB has labelled Begas bid "inadequate"

WCB has labelled Bega's bid "inadequate"

Australian dairy processor Warrnambool Cheese and Butter Factory has told shareholders to reject the "inadequate" takeover offer from peer Bega Cheese.

WCB chairman Terry Richardson and CEO and MD David Lord said today (26 September) Bega's cash-and-shares bid for the business "does not reflect [the] faor value] of the company's shares.

Two weeks ago, Bega, which owns an 18% stake in WCB, made an offer worth A$319m to buy the rest of the business.

The bid on the table would see WCB investors receive 1.2 Bega shares plus A$2 a share for their stake. Bega said the offer equated to a 30% premium to the volume average weighted price of WCB shares over the past month.

However, Richardson and Lord insisted there were "risks" in owning Bega's shares and said the offer was "timed to exploit recent gains in Bega's share price".

"The timing of Bega's offer is highly opportunistic and fails to reflect the value of a number of recent business improvement initiatives undertaken by WCB," the men said in a statement. "Bega's offer is highly conditional and uncertain and may result in a potential tax liability for WCB shareholders."

They added: "WCB has strong prospects as a globally focused manufacturer of value-added dairy products with a strong platform for future growth."

Next month, WCB will provide investors, which also include a third Australian dairy firm, Murray Goulburn, with a forecast for its 2013/14 earnings.

The executives added: "WCB has grown to become a leading innovator of dairy products and a strongly positioned competitor in the domestic and international dairy markets."

Bega has insisted the enlarged business would benefit from a "globally relevant" scale. Announcing the offer, executive chairman Barry Irvin said the "benefits for each company's shareholders, many of whom are farmer-supplier shareholders, are highly attractive". He pointed to annual synergies of A$7.5m. WCB has since said the possible synergies from a merger would be "materially higher" than Bega's estimate.

Irvin said: "Customers, dairy farmer suppliers and employees will also benefit from being associated with a larger, more diversified organisation, an enhanced market position and a scale that is globally relevant."

He added: "WCB shareholders are being offered shares in Bega which has a record of strong financial performance and value creation. While the potential synergies are substantial, we intend to deliver them while preserving WCB's identity and brands."

Three years ago, WCB rejected and ultimately fought off a takeover bid from Murray Goulburn.

Click here for our analysis of the factors that led Bega to table an offer for WCB.