Murray Goulburn Tops Rivals with $470 Million Cheese Bid

Murray Goulburn Cooperative Co., Australia’s biggest milk processor, raised its takeover offer for Warrnambool Cheese & Butter Factory Co. (WCB), valuing it at A$505 million ($470 million) and topping two rival bids.

The A$9 a share cash bid from Warrnambool’s second-largest shareholder is 13 percent higher than the A$8 offer from Canada’s Saputo Inc. (SAP) and above Bega Cheese Ltd. (BGA)’s share and cash proposal, the Melbourne-based company said today in a statement.

The three-way contest for the maker of brands including Sungold milk and Great Ocean Road cheese has more than doubled Warrnambool’s market value in the two months since Bega’s initial bid. The bidders are seeking to raise production and add export infrastructure amid rising demand in Asia.

Murray Goulburn’s new offer “defies any commercial common sense,” said Mark Topy, a Melbourne-based analyst at Canaccord Genuity Group Inc. “This really is a pretty aggressive strategy, they want this asset at all costs, irrespective of how it could endanger their own financial position.”

Warrnambool jumped 6.6 percent to A$9.10 in Sydney trading. Bega rose 5.1 percent to A$4.58, making its offer of 1.2 of its shares and A$2 cash worth A$7.50 for each Warrnambool share.

The bidding war comes as China, the world’s most populous nation, is setting records for milk-powder imports, while dairy demand is rising in India, Indonesia and Vietnam, according to Warrnambool.

‘Mighty’ Business

Warrnambool’s board, which has recommended Saputo’s offer to shareholders, will meet to consider the improved bid, the Victoria-state based company said in a statement. A call to Sandy Vassiadis, a spokeswoman for Saputo, wasn’t returned after business hours in Canada.

“This revised offer, and the combination of Murray Goulburn and Warrnambool, would deliver a mighty dairy food business oriented toward exports and oriented toward Asia,” Murray Goulburn Managing Director Gary Helou said today on a media call.

The maker of Devondale milk and cheese said Oct. 18 it had obtained A$350 million in extra debt facilities to help fund the purchase. “We are comfortable with this, our banks are comfortable with this,” Helou said. The company has options to raise more debt, or to raise equity from farmer shareholders or from external shareholders, he said.

‘Knockout Punch’

Bega holds 18 percent of Warrnambool and Murray Goulburn holds 17 percent, according to data compiled by Bloomberg.

Japan’s Kirin Holdings Co. bought a 9.99 percent stake in Warrnambool last month, seeking to protect an arrangement under which the producer supplies at least 12,000 metric tons of cheddar each year for its Australian unit’s Coon and Cracker Barrel cheese brands. Fonterra Cooperative Group, the world’s largest dairy exporter, said Nov. 1 it had acquired a 6 percent stake in New South Wales state-based Bega.

Montreal-based Saputo, Canada’s largest dairy processor, has the ability to beat Murray Goulburn’s proposal, Canaccord’s Topy said. “They have bid a dollar more to go for a knockout punch, but Saputo does have deeper pockets.”

Murray Goulburn, the only of the three bidders still to require approval from regulators, will lodge submissions with the Australian Competition Tribunal by Nov. 29 and expects the process to take around 90 days, Helou told reporters.

Bidding for Warrnambool began when Bega made a stock-and-cash proposal that was valued at A$5.78 a share when announced on Sept. 12. The next month, Saputo offered A$7 a share and Murray Goulburn bid A$7.50. Saputo raised its proposal to A$8 a share on Oct. 25.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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