Saputo faces just one rival in Australia as Bega Cheese ends effort to buy dairy

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MONTREAL – Saputo will face just one rival in the home stretch to acquire Australia’s oldest diary processor, with Bega Cheese set to withdraw from the race for Warrnambool Butter & Cheese.

Bega, which launched the battle for Warrnambool in September, says it won’t extend the Friday deadline for its cash and share offer — which has attracted less than one per cent of WCB shareholders.

“Bega Cheese is pleased its takeover offer for WCB has facilitated the competitive takeover process and created significant value for WCB shareholders,” it said in a news release posted with the Australian Stock Exchange.

Bega, which is Warrnambool’s largest shareholder, said it will “consider its options regarding its strategic shareholding in WCB.”

Bega could become kingmaker, helping Saputo or its remaining Australian rival, Murray Goulburn, to gain majority control by selling its 18.42 per cent of Warrnambool’s nearly 56 million shares.

Saputo and Murray Goulburn each have about 17 per cent of WCB’s stock. Japanese conglomerate Kirin, which owns the Australian and New Zealand food and beverage brand Lion, controls nearly 10 per cent.

Bega’s holding has more than doubled in value to nearly AU$100 million, a large amount for a small company which earned AU$15.9 million on AU$491 million of revenues last year.

Published reports in Austalia have suggested that Bega — the country’s fifth largest dairy processor — may sell to Saputo for financial and strategic reasons.

Irene Nattel of RBC Capital Markets said signs suggest that Bega doesn’t favour Murray Goulburn adding 10 per cent market share to its leading position of 31 per cent.

“With upper range of Saputo offer at $9.60, Saputo would deliver higher value to Bega for its WCB shares, and would be a more favourable outcome strategically,” she wrote in a report.

Murray Goulburn urged WCB shareholders to wait before tendering their shares, saying it believes there is a “significant risk” that Saputo will not achieve the ownership levels to trigger higher payouts to shareholders.

The co-operative plans to release its bidding statement on Monday which should update its stake in Warrnambool.

It noted that its AU$9.50 cash offer is superior to Saputo’s, which has a range from AU$9 to AU$9.60 depending on how much the Canadian company acquires.

Saputo and WCB’s board have noted that Murray Goulburn’s offer is conditional on obtaining approval from Australia’s competition tribunal, while Saputo’s bid doesn’t face that hurdle.

Saputo (TSX:SAP) sweetened its offer Tuesday following a ruling by Australia’s takeovers panel. The Montreal-based company said it is maintaining its base offer at AU$9 per share if it doesn’t get a majority of WCB’s stock but would pay up to 6.7 per cent more.

Saputo maintained its offer of AU$9.20 per share if it gets a simple majority, a condition included in the previous bid. However, it also agreed to pay AU$9.40 per share if it gets 75 per cent of the total and AU$9.60 per share if it gets at least 90 per cent of WCB’s stock.

The offer values Warrnambool at up to AU$537 million or about C$510.1 million (US$480 million) at current exchange rates, if Saputo pays the maximum.

However, to reach that threshold, Saputo would have to acquire some or all of the shares currently owned by Murray Goulburn.

On the Toronto Stock Exchange, Saputo’s shares closed at $47.98, up 21 cents in Wednesday trading.

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