The horse trading over the real value of the Bega Cheese (BGA) offer for Warrnambool Cheese and Butter (WCB) has started with the latter company attempting to cast doubt on the value of the Bega shares to be offered in the deal.
Warrnambool directors described the Bega bid, valued around $320 million, as "opportunistic".
That’s a usual tactic of target companies in takeovers and is part of an attempt to get Bega to sweeten the terms of the offer from the current 1.2 Bega shares and $2 cash. That valued Warrnambool shares around $5.78.
They closed yesterday at $6.05, up 0.8%, as investors punted on a higher price, or another bidder. Bega shares edged up a cent to end at $3.46.
WCB YTD – Warrnambool goes down the usual route in defence against Bega bid
In the statement issued yesterday and posted on its website Warrnambool attempted to raise doubt about whether the Bega shares represent fair value.
Warrnambool directors said there were a number of factors why its performance would improve.
These included the fall in the value of the Australian dollar and expected improvements in the state of the global dairy markets. These, they said "provide a positive outlook for WCB’s future growth and profitability and will create significant value for shareholders".
"WBC Directors will assess these factors as we consider whether Bega’s offer adequately reflects the value of the WCB business today, the expected earnings uplift from the initiatives currently underway and the improving market conditions. Given the highly favourable outlook for WCB, we consider the timing of the Offer to be highly opportunistic.
"As Australia’s oldest dairy processor, thanks to the support of our shareholders, suppliers, staff, customers and the community, WCB has grown to become a leading innovator in the dairy industry and a strongly positioned competitor in the domestic and international dairy markets.
"It is for these reasons that WCB’s assets are keenly sought by our competitors," directors said in yesterday’s statement.
Warrnambool directors said that until its directors issue their formal recommendation regarding the offer, which is likely to be in mid-October, shareholders should take no action.
Bega currently owns 18% stake of Warrnambool, while rival Murray Goulburn owns 16%, but can’t bid after trying twice and being rejected by the competition regulator, the ACCC.
Some rural media outlets suggest another bid could come from a Canadian dairy company. But that would be opposed by the National Party which is becoming very anti foreigner when it comes to offshore investment in rural Australia.
Murray Goulburn’s stake will be pivotal to Bega’s success because it will want 100% control so it can consolidated Warrnambool into its accounts and control cash flows.
Murray Goulburn will be pushing for a higher price, seeing it can’t bid. It could try and drum up a new bidder and offer to sell its stake to them to pressure Bega into a higher offer.
