YES, the board of Warrnambool Cheese and Butter was absolutely correct in categorically rejecting the offer from Bega Cheese.
But the WCB board is equally, absolutely wrong to have rushed into the arms of Canadian dairy group Saputo; and NOT engaged with Bega to negotiate a mutually beneficial and better deal.
Indeed, the very reasons that the WCB board and its adviser KPMG Corporate used to spell out why the Bega offer was too low, also spelt out exactly how that win-win deal could be done.
What has escaped both the WCB board and KPMG is that a WCB-Bega merger has to create more value than a cash offer from a foreign company, because it achieves value-creating synergies and simple scale that self-evidently a takeover by a business that doesn’t have anything here can’t create.
And further, again by definition, a cash offer as opposed to a share-swap offer does not cut WCB shareholders in on continuing value growth. If they accept Saputo, WCB shareholders are cashed and gone.
The really important and obviously difficult to understand point, by both the WCB board and KPMG, is that a domestic WCB-Bega merger HAS to be better. Both from a simple shareholder value perspective and the broader national interest.
This is true even if Saputo were paying a ridiculously high price. Which it is not; it is barely in the value zone.
Put simply: if it is in Saputo’s interest to pay `too much’ for Bega; let it come back and pay – or at least, offer – `too much’ for an enlarged Bega-WCB, once their merger synergies (and more ) have been realised.
In short, if subtly, Saputo has demonstrated that WCB – and Australian dairy more broadly – has greater global strategic value than WCB board and KPMG adviser can see.
It’s not too late. WCB directors must engage with Bega on constructing a deal to better share their future value. Even if that means paying Saputo a break fee.
They said for example that Bega’s offer doesn’t pay the dividend-associated franking credits of Saputo’s offer.
Well, duh: ask them to switch their cash payment to a WCB dividend.
And yes, if you use Bega’s pre-bid price the offer’s ‘too low.’ Duh, again. It doesn’t include the obvious value creation of a merger.
Source: Herald Sun