Australian dairy in play with Bega opening bid for WCB

Posted by AFN Staff Writers on 16th September 2013

New South Wales-based dairy company Bega Cheese Limited (Bega) has announced that it intends to make an unsolicited off-market $319 million takeover bid for Victorian-based dairy company Warrnambool Cheese and Butter (WCB).

The bid by Bega includes a mix of cash and a share swap that would result in a major merger of the businesses under Bega’s management.

Bega has offered 1.2 Bega shares and $2 cash for every WCB share, valuing WCB shares at $5.78 per share. This value is 28 per cent above the closing share price of WCB the day before the offer was made.

Meanwhile, NZ-Australian dairy giant Fonterra has joined forces with the Chinese state-owned investment agency China Investment Corporation to make an offer for Tasmania’s largest dairy farming enterprise – the Van Diemen’s Land Company (VDL). Both Bega move on WCB in Victoria and the proposed takeover of VDL in Tasmania signal major structural shifts in the heartlands of the Australian dairy industry in Victoria and Tasmania.

Bega currently owns 18 per cent of WCB. Australian dairy co-operative Murray Goulburn Co-operative Co Limited (Murray Goulburn) is another major WCB shareholder, with a 16 per cent share of the Company.

Bega has said its combined business of Bega Cheese, Tatura Milk with Warrnambool Cheese and Butter would create a business that operates over seven sites, produces 353,000 tonnes of dairy products, generates revenue of $1.5 billion from customers in Australia and globally, processes approximately 1.6 billion litres of milk from 1,000 Australian dairy farmers and employs approximately 2,000 people in regional Australia.

“The benefits for each company’s shareholders, many of whom are farmer supplier shareholders, are highly attractive,” said Barry Irvine, Executive Chairman of Bega. “Both groups of shareholders will access the synergies that can be realised by a successful merger, which we estimate will be $7.5 million per annum,” he said.

“Customers, dairy farmer suppliers and employees will also benefit from being associated with a larger, more diversified organisation, an enhanced market position and a scale that is globally relevant,” Mr Irvine said.

The offer from Bega comes amid difficult times for WCB. Australian Food News reported in August 2013 that WCB had announced a 2013 financial year profit that was 50 per cent loss on the previous year.

WCB said it had not yet had an opportunity to review Bega’s offer, and urged shareholders to take no action on the offer until WCB’s directors had issued a formal recommendation. WCB has appointed Minter Ellison and CIMB Corporate Finance (Australia) Limited to assist WCB’s director to evaluate and respond to the Bega offer.

Murray Goulburn said it would take time to “consider the detail of the offer”.

Industry commentators have speculated that if Murray Goulburn, as a major shareholder of WCB, were to accept the Bega offer, it could be a catalyst for further combinations by Bega with Murray Goulburn.

This comes at a time when dairy farmers are under pricing pressures from the major processors that are likewise being squeezed by the major supermarkets to offer long term cheap milk supplies.

There is a strong view that the Australian dairy industry is ripe for major restructuring and to replace older style production models with larger scale production technologies. This would facilitate a better way to capitalise on the huge dairy consumer growth in demand from China and other Asian markets but also offer cheaper milk prices to the Australian domestic market, based on more productive and economically sustainable systems.

Rumours about Tasmanian dairy company

The reported offer for VDL by New Zealand-based dairy giant Fonterra and China state-owned investment management company China Investment Corporation is not the first time that news has surfaced about VDL attracting investment interest from China. Australian Food News reported in September 2012 that VDL was in talks then with the China Investment Corporation. Tasman Farms Limited is currently the majority shareholder of VDL, holding 98.42 per cent share.


WCB has had a takeover offer from Bega Cheese