CANADIAN dairy giant Saputo is increasingly confident that its all-cash, $7-a-share offer for Warrnambool Cheese & Butter will succeed.
Conditional on 50.1 per cent of Warrnambool shareholders accepting, Saputo says 38.5 per cent of Warrnambool shareholders are people living in the Warrnambool region. They are predominantly current or former suppliers to the cheese and butter factory who prefer Saputo acquiring Warrnambool over Bega Cheese.
Last month, Bega offered 1.2 Bega shares plus $2 cash a share for Warrnambool. At the close of trading yesterday, Bega’s bid for Warrnambool was valued at $6.44 per share. Saputo says its superior offer puts it in prime position to win the deal.
Murray Goulburn Co-operative, an 18 per cent shareholder in Warrnambool which declined to comment, may come out in favour of Saputo’s bid. Lazard is advising Murray Goulburn.
Not so fast, says Bega’s adviser, David Williams. Those who perceive Bega’s bid was dead after the Canadian diary company’s higher offer have to think again, says the founder of Melbourne-based boutique advisory firm Kidder Williams.
Fund managers, Williams says, have been buying Bega and Warrnambool’s shares in the belief that Murray Goulburn may oppose the offer from Saputo, which is being advised by Rothschild and Rabobank.
For Bega chairman Barry Irvin and Williams, Bega’s share price rise justifies their strategy of not raising their bid. Bega’s shares yesterday rose to a record high of $3.74 and the stock is up 3.4 per cent since Saputo’s Tuesday bid. Warrnambool shares are also gaining, surging 12 per cent since Saputo’s bid was made public.
If Murray Goulburn rejects the Saputo bid and accepts Bega’s rival offer, Murray Goulburn would become the single biggest shareholder in Bega and encourage industry consolidation, says Williams. The last thing 63-year-old Murray Goulburn and 114-year-old Bega want is another foreign dairy entrant eroding their market share and earnings and preventing consolidation, he says. Still, Williams concedes that Murray Goulburn chief executive Gary Helou may have a price at which he is willing to sell his stake in 125-year-old Warrnambool.
Warrnambool, for its part, says Bega cannot match Saputo’s offer and flatly rejects Williams’s rationale for the rise in Bega’s and Warrnambool’s share prices. Bega’s share price is rising because it has an 18 per cent stake in Warrnambool. At Saputo’s offer of $7 a share, the Canadian company has added $24.92 million to Bega’s market value. If franking credits are added, Bega’s market value may increase by $30.52m.
Saputo’s offer of $7 a share for Warrnambool is actually $7.56 a share, once franking credits on the special dividend are added. Without Saputo’s offer, Bega’s shares are worth between 16c and 20c, including franking credits — less than the current price.
Williams declined to comment on Warrnambool’s numbers but did say: «If the market thought our bid would not get up, our price would have reverted right back to its pre-bid level and then added the value of the share price gain on Warrnambool shares. Instead it has powered ahead keeping all the gains from our bid.»
Source: The Australian