Canada’s Saputo close to taking control of Australia’s Warrnambool Cheese

Australian dairy major Bega Cheese Ltd yesterday agreed to sell its 18.8-per cent stake in Warrnambool Cheese and Butter Factory Holdings (WCB), one of the country's largest milk processors, to Canada's Saputo Inc at A$9 a share,  bringing to a close the rigorous three-way Australian bidding war that had been raging for the past four months.

Bega Cheese had kicked off the battle to control WCB in September when it launched a stock-and-cash offer that valued the company's shares at A$5.78 apiece. This triggered a rival offer next month from Canada's largest dairy producer Saputo, which offered A$7 a share and soon that was followed by a A$7.50 per share bid by Murray Goulburn Cooperative Co, Australia's biggest milk processor.

Both Bega Cheese and Murray Goulburn are two of WCB's largest shareholders with 18.8 per cent and 17 per cent stakes respectively. Japanese brewer Kirin Holding Co Ltd owns around 10 per cent while New Zealand's Fonterra Co-operative holds 6-per cent stake in the company.

The battle for WCB escalated in October, when Saputo raised its offer to A$8 a share or A$449 million topping the two rival bids. (See: Canada's Saputo raises bid for Australian milk processor Warrnambool)

Murray Goulburn, raised its October offer of A$7.50 per share to A$9 a share in cash or A$505 million, beating Saputo's offer by 13 per cent and Bega's by 24 per cent. (See: Murray Goulburn raises offer for Warrnambool to A$505 mn)

Subsequently, Saputo made an unconditional A$9 offer and Murray increased its offer to A$9.50 a share if it acquires over 50.1 per cent of WCB. Saputo countered by making its final bid in December offering A$9 a share that could increase to A$9.20 if it received over 50 per cent in WCB, A$9.40 if it received over 75 per cent and $9.60 if it acquired over 90 per cent. Saputo's offer ends on 22 January.

The current deal effectively ends the takeover battle which Bega started and later pulled out as the race intensified, and cedes control of WCB to the Canadian suitor with a total stake of 45.2-per cent and valuing WCB at around A$549 million.

In an announcement to the Australian Stock Exchange, Bega Cheese executive chairman Barry Irvin said, ''Bega Cheese's investment in Warrnambool has been a resounding success for both companies, enabling WCB to pay down debt in a time of need and positioning the company for the future.''

Bega is expected to make a A$62-68 million windfall profit, which will wipe out its debt and free up funds for future development.

Bega's investment in WCB which began in 2010, is valued at around A$33 million, and the company expects to receive A$95-101 million through the sale of its 10.5 million shares.

''The significant profit realised by the sale of our WCB holding will add to our capacity to pursue a number of strategic business opportunities,'' Irvin further said.

Victoria-based WCB is a 120-year old company which operates two manufacturing sites in South West Victoria and South Australia producing a range of dairy products for domestic and export markets, including cheese, butter and butter blends, milk, cream and dairy ingredients.

For the financial years ended 30 June 2013 WCB reported consolidated revenues of A$477 million. The company employs over 420 people.

The bidding lifted Warrnambool's share price significantly over the past few months which is now being traded at A$9.4 a share, about 38 times its 12 months trailing earnings, according to Reuters data.

Montreal-based Saputo founded in 1954, is Canada's leading dairy company and also has operations in the US, Germany, Wales and Argentina. The company's business includes cheese, baked goods and milk production and has an annual turnover of over $5.5 billion.