WCB slams Murray Goulburn takeover rationale

Posted by Nicole Eckersley on 6th April 2010

The battle over Australian dairy firm Warrnambool Cheese and Butter Factory has been turned up a notch with the company writing to investors to warn them of the “myth and little substance” of claims from suitor Murray Goulburn.

Since January, Murray Goulburn has had two takeover approaches rejected by the WCB board, which has argued that the group wants to acquire WCB at a knockdown price.

Murray Goulburn has since built up its stake in WCB to just under 10% while highlighting the benefits it claims WCB milk suppliers would gain if the company became part of its cooperative structure.

Murray Goulburn has suggested that, were the transaction to be completed, WCB suppliers would see higher milk payments. Meanwhile, profits not paid directly to farmers would be reinvested in the cooperative’s business, rather than paid to shareholders, Murray Goulburn has emphasised.

Such arguments have, however, been repeatedly rebuffed by WCB. In a letter to investors on Wednesday, WCB dismissed claims that the dairy co-operative offers better returns to its milk suppliers.

“When one looks behind MG’s rhetoric and considers the facts, it is clear there is mostly myth and little substance to its assertions,” WCB chairman Frank Davis wrote.

Davis said that Murray Goulburn actually pays its milk suppliers less than WCB when bonus share payments are stripped out.

“It is clear that, far from being a standard setter for the industry, MG is consistently the lowest payer,” he wrote. “The reality of MG’s underperformance on milk payments is exposed in their own annual report, where the bonus shares are reported in its capital account, not as part of milk payments.”

Additionally, Davis rejected the notion that Murray Goulburn’s farmer-shareholders are the immediate beneficiaries of any investment the group makes in its business.

“When MG reinvests profits belonging to their shareholders in the business, those profits become locked up within the balance sheet and inaccessible to the individual farmer. The beneficiary is the MG Corporation and its management,” he insisted.

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