Oz dairy consolidation

Canadian dairy giant Saputo is poised to take 100% control of Victoria processor Warrnambool Cheese & Butter, Australia’s fourth-largest dairy producer.

Warrnambool’s board is recommending an off-market A$8.85/share cash offer from Saputo in the absence of a better one.

Saputo now owns 88% of Warrnambool; Japanese-owned Lion Dairy & Drinks owns 10.2%. Lion bought its stake in Warrnambool in 2014 after Saputo beat Bega Cheese and Murray Goulburn to the control of this company, whose brands include Coon, Cracker Barrel and Great Ocean Road.

Bega Cheese last month brought most of the Australian and New Zealand grocery products under the control of US-based Mondelez International, making the Vegemite brand fully Australian owned for the first time in 80 years. Bega paid A$460m, and is entitled also to make Kraft cheese and spread under licence as part of the deal.

Australia’s dairy industry remains fractured, with several international dairy processors in the mx.

Fonterra is the second biggest dairy processor in Australia, Canada’s Saputo has locked in WCB and Japan’s Kirin bought National Foods, merging it with Lions Dairy & Drinks. Parmalat Australia is part of the Italian company Parmalat, majority owned by French family owned company Lactalis since 2011.

Murray Goulburn, the biggest dairy processor, is a co-op owned by Australian dairy farmers.

Warrnambool’s independent board committee, made up of non-Saupto directors, is recommending the offer.

It says the offer represents a substantial premium to recent trading prices, including:

a 24.8% premium over the closing price of $7.09 per WCB share on January 27, 2017, the last trading day before the offer was announced.

It says there appears to be very little prospect of a superior proposal from another bidder given the composition of the WCB share register.

The offer will allow WCB shareholders to sell their holding for cash at a substantial premium to recent trading prices, free of brokerage; and given the lack of liquidity in WCB shares, it may remain difficult for WCB shareholders to sell their shares other than by accepting the offer.

Lion sold its everyday cheese business to Saputo in 2015 for A$138m, which effectively ended its commercial relationship with Warrnambool.