The Board of Victorian-based dairy company Warrnambool Cheese and Butter (WCB) has announced that it unanimously recommends its shareholders accept a revised offer from Canadian dairy company Saputo to acquire all WCB share for $8 cash per share.

Meanwhile, Australian dairy co-operative Murray Goulburn has urged WCB shareholders not to “act prematurely” in giving up their WCB shares.

WCB Board recommends accepting Saputo offer

WCB said it received the revised offer from Saputo on Thursday 24 October 2013, and Board members have unanimously recommend shareholders accept the offer, in the absence of a superior proposal.

Subject to that same qualification, WCB said each of its directors and executives intended to accept the Revised Saputo Offer for all WCB shares they hold or otherwise control.

“The Board continues to focus on maximising value for shareholders, so we carefully considered the proposal from Murray Goulburn including seeking further information on their proposal,” said David Lord, CEO and Managing Director of WCB. “However, subsequent to those discussions, we received the Revised Saputo Offer, which we consider superior both in terms of price and conditionally to the alternatives,” he said.

Highlights of the revised Saputo offer for WCB shareholders

• Recommended Offer of $8 cash per WCB share, valuing WCB at $448.8 million on a fully diluted basis
• The Revised Saputo Offer gives WCB the discretion to pay two fully franked special dividends of up to $1.31 per share in aggregate. Any special dividends would be deducted from the Offer price of $8 cash per share payable by Saputo
• If Saputo obtains an interest in at least 50.1 per cent of WCB shares, WCB may pay an initial special dividend of up to $0.46 per share
• If Saputo obtains an interest in at least 90 per cent of WCB shares, WCB may pay a subsequent special dividend of $0.85 per share
• Some WCB shareholders may also derive additional value above $8 from the franking credits attached to those special dividends. The benefit of the franking credits, valued at up to $0.56 per share for some WCB shareholders if both special dividends are paid. Importantly, the value of franking credits varies depending on the tax position of individual WCB shareholders
• Saputo has made assurances about supporting WCB suppliers. It has also indicated it will retain employees and WCB’s corporate identity and brands. Saputo said it had the “strategic intent and financial capacity” to invest further in WCB

WCB said the Revised Saputo Offer was attractive on a number of financial metrics, and in particular was “materially superior” to the price offered by Murray Goulburn as announced on 18 October. The Revised Saputo Offer price values WCB at $448.8 million and represents a:

• 77.4 per cent premium over the closing price of $4.51 per WCB share on ASX on 11 September 2013, the last trading day prior to the announcement of Bega’s offer; and
• 6.7 per cent premium to the $7.50 cash per share proposal announced by Murray Goulburn on 18 October2013.

“The Board carefully considered both the Murray Goulburn proposal and Saputo’s Revised Offer before coming to its decision to recommend the Revised Saputo Offer in the absence of a superior proposal,” said Terry Richardson, Chairman of WCB. “In addition to the attractive price offered to shareholders, the WCB Board takes comfort in Saputo’s assurances to suppliers and employees, as well as its intention to invest in WCB’s assets and pay a leading competitive milk price,” he said.

Offer conditions

The Revised Saputo Offer remains conditional on, among other things:

• approval by or statement of no objection from Australia’s Foreign Investment Review Board;
• Saputo having a relevant interest in greater than 50 per cent of the WCB shares by the close of the Offer;
• no material new acquisitions, disposals or other commitments by WCB beyond certain financial thresholds; and no material adverse change or prescribed occurrence events occurring with respect to WCB.

The full agreed terms and conditions of the Offer remain the same as set out in Saputo’s initial proposal on 8 October 2013 other than in relation to the revised price.

WCB said the Bid Implementation Deed had been amended to reflect the Revised Saputo Offer and to otherwise reaffirm WCB’s support and recommendation of that Offer, in the absence of a superior proposal.

Bega’s offer and Murray Goulburn’s proposal

In light of the new offer, WCB directors said they continued to unanimously recommend rejecting the offer from Bega and the offer from Murray Goulburn.

Saputo has informed WCB that it intends to lodge its Bidder’s Statement containing detailed information relevant to the Offer on the 25 October 2013.

Murray Goulburn urges WCB shareholders to give ‘full consideration’ to all offers

Meanwhile, Murray Goulburn has announced that it believes the resolution of the future ownership of WCB will a “long process” and that WCB shareholders should not “act prematurely” in relation to giving up control of their shareholdings.

Murray Goulburn said it remains committed to acquiring WCB and to satisfying all conditions associated with its offer as quickly as possible. Murray Goulburn presently owns 17.7 per cent of WCB.

Murray Goulburn said it believed it to be “reasonable and in the national interest” that Saputo’s Foreign Investment Review Board (FIRB) application to acquire WCB was not resolved until the public benefits of Murray Goulburn’s proposed acquisition of WCB had been “given full consideration” – pursuant to Murray Goulburn’s application for authorisation to the Australian Competition Tribunal to acquire WCB.

Murray Goulburn said it considered that its offer would bring “many benefits for WCB shareholders, WCB suppliers, the Warrnambool community and the Australian dairy industry”.

Future battles ahead

However, unless Murray Goulburn is willing to step up with additional cash to outbid what financial commentators say is already an excessive price that overvalues WCB the question is what other avenues for expansion by acquisition are left for Murray Goulburn? Will Bega be the next contest? Will there be new international bidders such as Fonterra from New Zealand or Chinese, US or Indian groups hungry for acquisitions to meet the dairy market growth opportunities in nearby Asian markets?

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