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Bega’s share shed paves the way for Saputo takeover of Warrnambool

By RJ Whitehead , 20-Jan-2014

Bega’s share shed paves the way for Saputo takeover of Warrnambool

The announcement today by Australia’s Bega Cheese to sell its stock in Warrnambool leaves the way clear for Lion to follow suit, while Canadian dairy company Saputo should now be free to take over the New South Wales cheese and butter business.

Bega had pulled out of the fraught, multipartite attempt to take over Warrnambool in December, and will now focus on the significant profits it will realise from its sale of 18.8% shares in the company.

The company stands to make between A$94.7m and A$101m for its stakeholding depending on Saputo’s relevant interest at the close of its offer, meaning it will receive between A$61.8m and A$68.2m after tax and costs are calculated.

A week ago, Saputo claimed it controlled over one-quarter of Warrnambool shares, meaning that Bega’s stake will see it control at least 45% of the company’s shares almost a week before the closing date of its takeover offer.

Food manufacturer Lion acquired a 9.99% stake in Warrnambool in November, and industry commentators in Australia have been suggesting the company would shed its shares if it saw Bega doing similarly, according to the country’s ABC news service.

Bega has for some time had its eyes on the cheese and butter company, saying that its “strong preference” would be for the business to stay in Australian hands either as part of a Warrnambool-Bega partnership, or with Murray-Goulburn, which had earlier bid for it.

However, it announced today that in the face of a strong campaign by Saputo,  the share sale would lead to a “better financial outcome for Bega Cheese and its shareholders than a successful takeover at the current bid value.

Bega Cheese’s investment in WCB has been a resounding success for both companies, in enabling WCB to pay down debt in a time of need and positioning the company for the future,” said Barry Irvin, Bega Cheese executive chairman.

Bega Cheese’s initial investment in WCB and subsequent takeover offer for the company has created significant value for both companies’ shareholders. [Our] takeover offer was the catalyst for a process which has highlighted the value of the Australian dairy industry, a rerating of Bega Cheese’s share price and a substantial profit for Bega Cheese.

But, he added, it was too big a risk for the company to hold its WCB shareholding until the Australian Competition Tribunal’s decision regarding Murray Goulburn’s takeover was finalised, or until a fourth bidder emerged.

Bega has been in a strategic relationship with Warrnambool since 2010, and since then, the former has continued to increase its shareholding to the tune of A$32.9m.

The objective of our takeover offer for WCB 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,” said Irvin. 

The increasing international interest in Australia’s dairy industry comes amid suggestions that it will see huge demand from Asia as countries there continue to boom, and traditionally non-dairy-based diets, especially in East Asia, adopt more milk, butter and cheese.

Some analysts believe that this growth in exports will increase by as much as 60% over the next decade.

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