The competition to supply Asia’s growing appetite for dairy got hotter Thursday with Bega Cheese Ltd.’s BGA.AU +5.71% 319 million Australian dollar (US$298 million) bid for Warrnambool Cheese & Butter Factory Co.WCB.AU +27.94%
Bega’s executive chairman, Barry Irvin, said a merger would help the company—which already owns an 18% stake—to save around A$7.5 million a year and give it «globally relevant» scale.
Warrnambool said its directors would meet shortly to consider the offer, but the deal may yet be thwarted by another big shareholder, Murray Goulburn Cooperative Co., Australia’s biggest dairy producer, which has said it is looking at the details. Its 16% stake is substantial enough to impede the proposed merger, which would give the combined group a market value of about A$650 million.
Asia’s growing middle classes have been changing their diets to include more dairy, wheat and other types of food grown extensively in countries such as Australia and New Zealand. The trend has led to growing overseas interest in companies in the agricultural sector Down Under that are facing tougher times in their home markets.
Chinese companies, in particular, have been sniffing around Australia’s farming industry, partly in a bid to secure reliable new food sources to supply future demand at home.
Bega is offering A$2.00 in cash and 1.2 of its own shares for each Warrnambool share it doesn’t already own. The offer values Warrnambool shares at A$5.78—a hefty premium to Wednesday’s A$4.51 closing price. Warrnambool’s shares jumped 28% on Thursday to close at A$5.77, just shy of the offer price, in a sign investors felt confident a deal would proceed.
Australia’s food sector has faced a wave of consolidation in recent years, including Archer Daniels Midland Co.’s A$3.4 billion takeover of grain handler GrainCorp Ltd. and China’s Bright Food Co.’s purchase of a controlling stake in dairy and bread company Manassen Foods in 2011.
In Australia, food producers are currently under pressure from a strong local currency that is crimping offshore revenue. Their margins have also been squeezed by rising labor costs and steep discounting by the country’s two biggest supermarkets in the face of a weakening domestic economy.
Earlier this year, Murray Goulburn signed a 10-year deal to supply private-label milk to one of the retailers, Coles, at lower prices in return for the chain stocking its cheeses for the first time in almost a decade.
Source: Â WSJ
