Saputo Nears Warrnambool Control as Bega Agrees Stake Sale

Saputo Inc. (SAP), Canada’s biggest milk processor, neared control of Warrnambool Cheese & Butter Factory Co. (WCB), as the Australian dairy producer’s second-largest shareholder agreed to sell its holding.

Bega Cheese Ltd. (BGA), which withdrew its own offer last month for the maker of Sungold milk, will sell its 18.8 percent stake to Saputo, which made a A$537 million ($473 million) bid, according to a statement today. The sale will take Saputo’s stake to 45.2 percent, based on data compiled by Bloomberg.

Warrnambool, which also makes Great Ocean Road cheese, has more than doubled in market value since Bega’s offer in September began a three-way tussle for the company with Victoria state-based Murray Goulburn Cooperative Co. Bidders are seeking to increase production and add export infrastructure to help tap rising demand for dairy in Asia.

“The floodgates will probably open a bit now,” said Mark Topy, a Melbourne-based analyst at Canaccord Genuity Corp. “There’s a fair chance they will get to 50 percent.”

Warrnambool rose 1.3 percent to close at A$9.40 in Sydney, while Bega climbed 1 cent to A$4.62.

Bega will make a profit before tax and costs of between A$61.8 million and A$68.2 million depending on the total holding Saputo secures, it said. That compares with net income of A$25.4 million for the year ended June 30, 2013.

Growth Opportunities

“Warrnambool is an important asset, but it’s by no means the last opportunity in the Australian dairy industry,” Bega Chairman Barry Irvin said in a phone interview. “We have got enormous organic growth opportunities. We would also say there are consolidation acquisition opportunities.”

Bega may look to make acquisitions among New Zealand producers of high-value dairy products including infant powder, or invest in projects to target increasing demand for mozzarella and pizza cheese, according to Topy.

Saputo will pay a maximum of A$9.60 a share in cash should it gain more than 90 percent of Warrnambool, the Montreal-based company said Dec. 17 in a statement. Its offer is higher than the A$9.50 a share bid from Murray Goulburn, which requires approval from the Australian Competition Tribunal.

“We’re obviously very pleased that Bega has announced it will sell into Saputo’s offer and expect many other shareholders will follow Bega’s lead,” Saputo adviser Sam Prentice at Rothschild said in an e-mailed statement.

Murray Goulburn “will assess the ramifications of this development” in relation to its bid and its own stake in Warrnambool, the producer said in an e-mailed statement.

Melbourne-based Murray Goulburn holds a 17.66 percent stake in Warrnambool and Kirin Holdings Co. has 10 percent.

“Kirin will keep its holding as a negotiating chip, they might accept somewhere down the track,” Topy said.

Leela Sutton, a spokeswoman for Lion, Kirin’s Australian unit, declined to comment.

Warrnambool has an arrangement with Kirin to supply at least 12,000 metric tons of cheddar each year for its Australian unit’s Coon and Cracker Barrel cheese brands.

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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