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Bidding War for Cheese Heralds 13% Warrnambool Bump

November 2, 2013

International dairy groups with an eye on Asia compete for Australian cheese plant.

Angus Whitley and David Stringer

Nov. 1 -- A three-way bidding war for Australian cheese that is already leading to one of Asia’s most expensive food deals is poised to become even pricier.

Saputo Inc. of Montreal offered $425 million for Warrnambool Cheese & Butter Factory Co. last month, beating two bidders with a record premium for a peer in Asia, according to data compiled by Bloomberg.

After Japan’s Kirin Holdings Co. this week bought about 10 percent of Warrnambool for more than Saputo’s proposed takeover price, bids may rise even higher, said RBS Morgans Ltd.

Warrnambool offers Saputo a springboard into Asia’s growing markets, while Australian bidders and shareholders Murray Goulburn Co-operative Co. and Bega Cheese Ltd. want to keep out their larger Canadian rival, according to Rivkin Securities Pty. Shares in Australia’s oldest dairy producer are trading above Saputo’s A$8-a-share cash proposal, indicating some investors expect a higher offer. Bids may reach A$9, said RBS Morgans.

"There will be more corporate moves on this," Graeme Browning, Sydney-based head of Australian transactions at EY, the consulting firm formerly known as Ernst & Young, said in a phone interview. "This is a very strategic asset to a whole range of buyers."

The 125-year-old Warrnambool, based near the town in Victoria that bears its name, said that exports accounted for 46 percent of sales last fiscal year. Its brands include Sungold milk.

Bidding Contest

The bidding for Warrnambool started when Bega, the company’s biggest investor with an 18 percent stake, made a stock-and-cash proposal that was valued at A$5.78 a share when it was announced Sept. 12. The next month, Saputo offered A$7 a share and Murray Goulburn, which owns 17 percent of Warrnambool, bid A$7.50. Then Saputo, Canada’s largest dairy processor, agreed to pay A$8 on Oct. 25.

This week, Kirin’s food and drinks unit in Australia, Lion, said it acquired 9.99 percent of Warrnambool. According to exchange filings, it bought the shares on Oct. 29, when they were trading above Saputo’s latest bid.

Warrnambool has agreements to supply as much as 20,000 metric tons of cheddar each year for Lion’s Coon and Cracker Barrel cheese brands, according to an April presentation. The purchase of a stake in Warrnambool was a "strengthening of this relationship," Sydney-based Lion said in a statement.

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