Saputo sweetens bid for Australian cheesemaker, rival hints at higher bid

MONTREAL – The battle for Australia’s oldest dairy processor appears far from over as Saputo opened the door to substantially sweetening its offer and its chief rival hinted at a higher bid for Warrnambool Cheese and Butter.

The Montreal-based company (TSX:SAP) 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 under certain circumstances.

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.

Saputo (TSX:SAP) said its latest offer is “final” through the Jan. 10 offer period.

Its higher bid was the result of an Australian regulator’s decision not to block Saputo’s efforts to process tendered shares despite criticizing the Canadian cheese giant and Warrnambool for eliminating a special dividend that was part of a previous bid.

The Australian Takeovers Panel said the decision by Saputo and Warrnambool to remove the special dividend caused “confusion and disruption to the market for Warrnambool shares.”

“This was even more problematic in the context of the context of the competing bids for Warrnambool,” it said in a news release.

However, the panel said it wasn’t against the public interest to block Saputo’s bid — provided it agreed to three undertakings: extend its offer deadline and increase its offer, allow WCB shareholders to withdraw their tenders and for Warrnambool outline the status of the three bids.

Irene Nattel of RBC Capital Markets said the ruling gave WCB and Saputo an early Christmas present, “allowing the process to move forward with only a slap on the wrist.”

Barring share withdrawals, Saputo has increased its stake in Warrnambool to 16.92 per cent as of Monday. That ranks it behind rival bidders Bega Cheese and Murray Goulburn with 18.42 per cent and 17.66 per cent respectively. Japanese conglomerate’s Lion Dairy owns 9.99 per cent.

Murray Goulburn said in a bidder’s statement to the Australian Stock Exchange that it has boosted its financial firepower to AU$770 million. The co-operative has offered US$9.50 per share but said it might match up to $1.31 in special dividends if they are reinstated by Warrnambool. If it can obtain franking or tax credits, that would essential raise the value of its offer to $10.81.

The co-operative said combining with Warrnambool would create “an Australian dairy powerhouse” with AU$3 billion of annual revenues, 3.8 billion litres of annual milk intake, 900,000 tonnes of annual dairy production and AU$1.4 billion of export sales to customers in more than 60 countries.

Murray Goulburn chairman Phillip Tracy said the company to be known as Murray Goulburn Warrnambool “can capture the benefits of the Asian century” by taking advantage of Australia’s proximity to Asia to grow exports and benefit farmer suppliers and rural communities.

However, Murray Goulburn’s bid is conditional on winning approval from Australia’s competition tribunal because the combined firm would control 41 per cent of the country’s dairy processing.

Nattel said Murray Goulburn withdrew a previous attempt to acquire WCB after receiving indications that the tribunal would not approve.

But the firm believes it can obtain an exemption from a provision of the Competition and Consumer Act which prohibits mergers and acquisitions that may substantially reduce competition by convincing authorities of the net public benefit of the deal.

The tribunal is expected to hold hearings in early February and rule by the end of the month or no later than May 30.

On the Toronto Stock Exchange, Saputo’s shares gained 21 cents at $47.38 in Tuesday morning trading.