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Warrnambool Sees ‘Significant’ Risk in Murray Goulburn Offer

Warrnambool Cheese & Butter Factory Co. said Murray Goulburn Co-operative Co.’s takeover bid needs antitrust approval and carries a “significant” risk of failure as it recommended a rival offer from Saputo Inc.

Warrnambool’s board recommended shareholders accept Saputo’s revised offer and reject bids from Murray Goulburn and Bega Cheese Ltd., the directors of the Victoria state-based company said today in a statement. Saputo’s offer is superior to Murray Goulburn’s in terms of timing and certainty, while Bega’s share price didn’t reflect fundamental value, they said.

Warrnambool, Australia’s oldest dairy producer, Nov. 15 accepted the sweetened A$505 million ($474 million) bid, worth A$9 a share, from Montreal-based Saputo. That offer matched the value of a proposal from local rival Murray Goulburn, though it trails the value of a stock-and-cash bid from Bega .

Saputo’s cash bid, which has been approved by Australia’s Treasury, holds “no risk,” Warrnambool Managing Director David Lord said in a recorded interview posted on the website of the Australian Financial Review yesterday. The competition regulator may take as long as six months to assess Murray Goulburn’s offer, Lord said.

‘Inherent Risk’

There is “significant completion risk” tied to Murray Goulburn’s offer, Lord said. At the same time, the stock-and-cash bid from Bega holds “inherent risk” for Warrnambool shareholders because of the equity component of the offer, he said. Lord said the “true value” of Bega’s shares “isn’t evident” in Bega’s current stock price.

Warrnambool gained 2.1 percent with a record closing price of A$9.29 in Sydney.

Lynn Semjaniv, a spokeswoman for Murray Goulburn, declined to comment on Lord’s interview.

David Williams, adviser to Bega at Kidder Williams Ltd., said he disagreed with Lord’s assessment of Bega’s share price. Investors have upgraded their valuations of Australia’s entire dairy industry, he said. Bega, which owns an 18 percent stake in its target, will hold information sessions with Warrnambool shareholders this week, the company said today in a statement.

Murray Goulburn wasn’t out of contention for the cheesemaker, and “would be there until the last round,” said Managing Director Gary Helou, according to an interview published today in the Australian Financial Review.

Bega has offered 1.5 of its own shares and A$2 cash for each Warrnambool share. Bega’s stock closed at A$4.75 on Nov. 15, valuing its proposal at A$9.13.

Bega shares have climbed during the bidding war as Warrnambool shares surged, partly because Bega owns about 18 percent of Warrnambool.

Warrnambool’s market value has more than doubled in the two months since Bega, its largest shareholder, made an initial offer and triggered the three-way takeover contest. Bidders are pursuing greater scale to help them tap rising demand for dairy produce, including milk powder, in Asia’s emerging nations.

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