Bega Cheese Ltd, in NSW, this month bid to buy Warrnambool Cheese & Butter factory. Bega, already holding 18% of its target, is offering 1.2 Bega shares plus A$2 cash for each WCB share it doesn’t already hold.
Investors welcomed the tilt, sending WCB’s shares up A$1.26 to a record $5.77. However, WCB has strongly resisted past takeover bids, including one in 2010 by rival processor Murray Goulburn, which owns 17% stake in the Victoria processor.
Both WCB and Bega retain a large number of farmer shareholders after their listings on the ASX. Farmers are keen to see consolidation in the industry. WCB, whose profits fell 50% last year, has been the subject of constant takeover speculation, largely due to the presence of Bega and Murray Goulburn on its share register.
United Dairy Farmers of Victoria president Kerry Callow says farmers had welcomed Bega’s bid for WBC, arguing the deal would give the target scale without lessening competition. Callow says Bega executive chairman Barry Irvin is a trusted figure.
“Barry Irvin is well known and respected in the industry and [Bega and Warrnambool] are similar and compatible companies,” Callow says. “[The bid] appears to have been taken reasonably positively, and from an industry point of view it’s consolidation that doesn’t actually mean less competition.”
Australian media are speculating that Murray Goulburn could launch a counter bid. However, its balance sheet is stretched supplying its A$2 billion milk contract with retailer Coles. As Australia’s largest dairy processor, Murray Goulburn would likely face resistance from the Australian Competition & Consumer Commission if it were to mount a rival takeover bid.
WCB’s board responded to the takeover bid with a brief statement advising shareholders to take no action until directors have issued a formal recommendation.
In a letter to WCB shareholders Irvin says a merger between the two companies is “the next logical progression” to create a strong listed dairy processor.
He says both companies still have large number of shareholders who are dairy farmers or have roots in dairy farming communities.
“While both companies value their heritage, each has also looked to the future in terms of corporate structure and invited investment from other shareholders who recognise the opportunity that exists to create
value and respond to the growing global demand for quality dairy products.”
Irvin says a combined Bega and WCB would create a business operating on seven sites, processing 1.6b L of milk, produce 3.53 m tonnes of dairy products and generating revenues of A$1.5 billion.
