DAIRY wars don’t come much more complicated than the battle for Warrnambool Cheese and Butter.
There are three direct suitors in the form of Canadian company, Saputo, and domestic players, Murray Goulburn and Bega Cheese.
Overlaying that tussle you have New Zealand dairy giant, Fonterra, buying in through a stake in Bega and Japanese brewing and dairy giant, Kirin, through subsidiary Lion, trying to grab a blocking stake in Warrnambool to protect its Aussie supply arrangements.
Complicating matters further, Saputo needs Foreign Investment Review Board clearance for its bid, which is facing problems due to the large 46 per cent blocking stake in Warrnambool held by Murray Goulburn, Bega and Kirin. And Murray Goulburn’s bid will need competition clearance from the Australian Competition and Consumer Commission, which would prefer to keep three major milk buyers operating in parts of Victoria and South Australia in the form of Warrnambool, Fonterra and Murray Goulburn.
The consolidation rush has pushed the prices of Warrnambool and Bega to levels that would have been unimaginable a few months ago as the international dairy giants all muscle in for a piece of the action. Their eyes are on the strategic value of the dairy assets in an era in which Asia’s appetite for dairy products is rising quickly.
When you tally all the circumstances together, Bega has the clearest run at Warrnambool at the moment with its rocketing share prices elevating its cash/scrip bid close to Saputo’s all-cash offer and no regulatory issues. However, as we have seen so far, the pieces in this international chess game are moving quickly, and crowning a winner too early is foolish.
As for the long-term effects of this consolidation, these sorts of valuations don’t seem supportive of milk prices remaining at $1 a litre, although when Kirin paid $3.1 billion for milk and juice group National Foods in 2007, it ended up wearing big losses.
Other than the dairy war, the big news this week will be today’s announcement by Westpac chief Gail Kelly of the bank’s full-year profit.
Commonwealth Bank’s September quarter update on Friday will leave investors
fully informed of how the big four banks are travelling in the lead-up to Christmas.
The RBA is almost unanimously tipped to leave interest rates steady at its Melbourne Cup Day meeting and analysts will be scrutinising outlook comments at shareholder meetings by Whitehaven Coal, Downer EDI, Fairfax Media, Wesfarmers, Echo Entertainment and Hills Holdings.
Source: Herald Sun