Bega Cheese Bid for Warrnambool Can Proceed, Says Regulator

Bega Cheese Ltd., the underbidder in the battle for Warrnambool Cheese & Butter Factory Co., won Australian regulator approval for its A$408 million ($387 million) offer for the dairy producer.

The approval makes Bega the only of three bidders for Warrnambool to be cleared, as Saputo Inc.’s A$449 million proposal is being reviewed by Australia’s Foreign Investment Review Board and Murray Goulburn Cooperative Co. seeks regulatory clearance through the Australian Competition Tribunal. Bega’s board will meet next week to consider improving its offer, Executive Chairman Barry Irvin said today in an interview.

“We are happy with the position we are in and the fact that we have the approvals and processes in place,” Irvin said. “Really it does just come down to a matter of what level we are comfortable bidding at.”

Montreal-based Saputo won support from Warrnambool’s board with an improved offer of A$8 a share made last week, topping a A$7.50 per share cash proposal from Murray Goulburn and above Bega’s cash and shares offer. Bega closed in Sydney at A$4.41, making its offer of 1.2 shares and A$2 cash for each Warrnambool share worth A$7.29.

Warrnambool fell 0.7 percent to A$8.30 in Sydney trading.

Dairy Demand

The contest for Warrnambool, which makes brands including Sungold milk and Great Ocean Road cheese, comes as bidders attempt to raise production and add export infrastructure amid rising demand in Asia. China, the world’s most populous nation, is setting records for milk-powder imports to fill its milk production deficit, while dairy demand is rising in India, Indonesia and Vietnam, the Victoria-state based company said in an Oct. 9 presentation.

Australia’s competition commission ruled that a merged Bega and Warrnambool wouldn’t risk lowering prices paid to farmers for raw milk. A combined company “would continue to be constrained by other dairy manufacturers that they compete more closely with in the acquisition of raw milk, including Murray Goulburn,” the commission’s Chairman Rod Sims said in a statement.

Kirin Holdings Co., Japan’s largest beverage maker, bought a 9.99 percent stake in Warrnambool on Oct. 29, the company said in a statement. Kirin’s Australian unit Lion, which has a contract with Warrnambool to manufacture cheese for its Coon and Cracker Barrel brands, may be seeking to block a Saputo takeover, according to Canaccord Genuity Group Inc.

Compelling Offer

“We have put forward a compelling all cash A$8 per share offer,” Saputo’s Chief Executive Officer Lino Saputo, said in an e-mailed statement. “Saputo has made its intentions clear in terms of investing in and growing the Warrnambool business, expanding capacity and growing milk intake.”

Murray Goulburn “remains committed to acquiring Warrnambool Cheese & Butter Factory Co. and to satisfying all conditions of its offer,” the Melbourne-based company said today in an e-mailed statement on the commission’s decision. Warrnambool declined to comment on the regulator’s statement.

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

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