Murray Goulburn’s A$420 Million Warrnambool Bid Tops Saputo

October 18, 2013 08:11 AM

Analyst says "anything is possible" after Australia’s biggest milk processor outbids Saputo for cheese and butter factory.

David Stringer

Murray Goulburn Cooperative Co., Australia’s biggest milk processor, joined a three-way contest for Warrnambool Cheese & Butter Factory Co., making a bid valued at A$420 million ($404 million).

Murray Goulburn, Warrnambool’s second-largest shareholder, offered A$7.50 cash a share, for the maker of brands including Sungold and Warrnambool cheddar, it said today in a statement. It’s priced at 7.1 percent more than Saputo Inc.’s A$7 offer and 13 percent above Bega Cheese Ltd.’s cash and share bid.

Warrnambool jumped 6.3 percent to A$7.89 in Sydney trading, suggesting some investors expect a higher bid.

"Anything is possible at this stage," said Mark Topy, a Melbourne-based analyst with Canaccord Genuity Group Inc. "They have all gone a little hot on just getting the assets at any price." There is also an "outside chance" of further bidders making offers for the dairy producer, Topy said.

Bidders are seeking to add production to meet rising demand in Asia which will this year see the price of exported milk powder surge 33 percent, butter rise 16 percent and cheese climb 12 percent, according to a Oct. 9 filing by Warrnambool.

The Victoria-state based producer relies on exports for most of its sales and last year made 143,000 metric tons of dairy produce including cheese, milk powder and infant-formula ingredients. China, the world’s most populous nation, is setting new records for milk-powder imports, while dairy demand in India is outstripping local production, the company said.

Competing Bids

Montreal-based Saputo, Canada’s largest dairy processor, could increase its offer for Warrnambool, according to Topy. "Price doesn’t seem to have been that big a consideration," he said. "They want a base in Australia."

Buying Warrnambool, which also supplies milk to make Philadelphia cream cheese, would give Murray Goulburn control of a neighboring processor and key export infrastructure, Managing Director Gary Helou told reporters today on a conference call.

A deal would allow the farmer-owned co-operative to take a "major step toward arresting the decline in our industry and seizing the prize that Asian markets are offering us," Helou said.

Murray Goulburn, which had its 2010 offer for Warrnambool rejected, made a bid priced at 1 percent more than Warrnambool’s closing price of A$7.42 yesterday. The maker of Devondale milk and cheese said it obtained A$350 million in extra debt facilities to help fund the purchase.
Warrnambool directors will meet to consider the Murray Goulburn proposal, it said today in a statement. The company’s board has unanimously recommended Saputo’s offer and rejected Bega’s bid as too low. "Shareholders will have ample time to make a decision," the producer said.


Helou said the company would seek approval for the deal from the Australian Competition Tribunal, allowing it to respond publicly to any regulatory concern over dairy industry consolidation. "We think we have a compelling net public benefit argument here," Helou told reporters.

Evan Lucas, a market strategist at IG Markets in Melbourne, said regulators would examine the potential that a deal could restrict competition in milk processing in Victoria state and South Australia state. "It may mean that Murray Goulburn talk about getting round that issue by selling some assets," he said.

Bega rose 0.8 percent to A$3.88 in Sydney, swelling the value of its bid to A$6.66 a share. The New South Wales state- based producer last month offered 1.2 shares and A$2 cash for each Warrnambool share.

With a cash balance at June 30 of A$24.2 million, Bega is unlikely to be in a position to raise its offer, according to Topy. "The game is all about cash now," he said.

Murray Goulburn, which is being advised by Lazard Ltd., holds 17 percent and Bega Cheese holds 18 percent of Warrnambool, according to data compiled by Bloomberg.

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