LATER this week Bega Cheese’s board of directors will meet. They may make their bid for Warrnambool Cheese & Butter Factory unconditional, while debating whether to raise their offer for the Victorian dairy company.
The board of the New South Wales cheese maker may meet as early as Thursday to plan their next move in the Warrnambool takeover battle, says Bega chairman Barry Irvin.
“We’ll discuss the remaining conditions of our offer and the offer value,” Irvin told DataRoom. “We’re well positioned.”
As of the close of trading on Friday, Bega’s offer of 1.2 of its shares plus $2 cash per Warrnambool share valued its bid at $7.796 a share.
That’s not too far behind Saputo Inc’s $8 a share cash offer for Warrnambool and ahead of Murray Goulburn Co-operative Ltd’s $7.50 a share cash offer.
Still, Bega is now conscious it may be in the sights of some who want to buy a stake in the company now it has emerged as the unlikely Warrnambool front runner and prime mover in the consolidation of the Australian dairy industry.
But Bega’s constitution limits any one shareholder to a stake of no more than 10 per cent. The company’s shares are closely held and not widely traded.
Fonterra was thought to have wanted as much as a 10 per cent Bega stake but only managed to buy a 6 per cent shareholding last week.
The New Zealand dairy cooperative’s purchase of 9.3 million Bega shares at an average price of $4.95 on Thursday will support Bega’s stock price.
Meanwhile, Saputo’s 50.1 per cent conditional offer for Warrnambool is seemingly blocked by a trio of hostile competitors: Bega, Murray Goulburn and Lion. Together the three have a 46 per cent stake in Warrnambool.
Murray Goulburn may struggle to convince the Australian Competition Tribunal of the merits of its offer given the Australian Competition and Consumer Commission’s opposition to cutting the number of major buyers of milk in south western Victoria and parts of South Australia to two from the current three: Warrnambool, Murray Goulburn and Fonterra.
Last week Bega received ACCC approval to pursue its Warrnambool takeover. Its shares climbed 21 per cent last week to $4.83 at the close of trading Friday.
In contrast, Warrnambool shares have slid.
Since Tuesday’s announcement that Lion bought a 9.99 per cent stake in Warrnambool, the Victorian dairy company’s shares have fallen 6 per cent to $8.27 at the close of trading Friday.
That leaves Bega free to continue to pursue the course of action it has done since its September announcement: nothing.
Bega’s Irvin adds Fonterra’s stake is friendly.
“They have said to me their investment in us is friendly,” he says. “They are our biggest customer.”
Lion has a liquid milk joint venture with Bega in the Canberra area and also seems to be on friendly terms with the Bega chairman.
Bega’s advisor, David Williams of Kidder Williams Ltd, has been preaching patience. Irvin told DataRoom he sees no urgency to make material changes to its Warrnambool offer.
“It’s best to let things settle down a little bit,” says Irvin.
Bega’s share price gain, up 53 per cent since its September 12 announcement of its bid for Warrnambool, has vindicated Williams’ counsel that Bega does not yet have to materially boost its Warrnambool offer.
Moreover, if Bega’s shares do become the target for strategic buyers who want a piece of the company that may lead the consolidation of the Australia dairy industry, Irvin and Williams are likely to welcome it.
It pushes their currency, Bega shares, higher and makes their offer that much more attractive to the Warrnambool shareholders.
Source: The Australian