Fonterra acquisition of Bega shares signals a power shift in WCB takeover battle

Posted by AFN Staff Writers on 4th November 2013

New Zealand based dairy giant Fonterra last week bought 9.3 million shares in New South Wales dairy company Bega for a total cost of $46 million, sending Bega’s share price to a record high. The buy-up resulted in Fonterra having acquired a 6 per cent share in Bega.

Meanwhile, food and beverage manufacturing company Lion has also taken steps to ensure it has strong standing in the negotiation for the future of Warrnambool Cheese and Butter (WCB) by Lion’s acquisition a few days earlier of a 9.99 per cent shareholding in WCB.

The earliest takeover bid for WCB came from Bega in September 2013. Bega had offered a mixture of Bega shares and cash for any shareholders in WCB selling their shares to Bega.

In October 2013, Australia’s largest dairy co-operative Murray Goulburn made its own bid of $7.50 per share. Murray Goulburn’s bid was followed by a higher bid of $8 per share offered by Canadian group Saputo.

Even if Fonterra buys additional Bega shares, Bega has a 10 per cent shareholder cap. Fonterra currently licenses the Bega brand from Bega and has a substantial supply contract for Bega cheese.

“There has recently been a lot of consolidation activity in the Australian dairy industry,” said Theo Spierings, Fonterra Chief Executive. “It is important that Fonterra participates, and we have confidence in Bega and the strategy it is pursuing,” he said.

Impact on Bega bid for WCB

At the time that Australian Food News first reported Bega’s bid for WCB, the bid valued WCB shares at $5.78 per share.

The Bega share price jump came not just as a result of the Fonterra buy-up but because of investor sentiment that the innovative Bega’s play could trigger further industry reorganisation, given that both Fonterra and Murray Goulburn are closely involved with Bega.

Any increase in Bega’s share price is automatically increasing the value of its share swap offer with WCB shareholders simply by virtue of the lift in the share price of Bega. By the end of last week, the price value of Bega’s offer had been pushed to $7.80 per WCB share. The Bega price may not be much less than Canadian dairy company Saputo’s most recent offer of $8 cash per WCB share, and exceeded Australian dairy co-operative Murray Goulburn’s offer of $7.50 cash per WCB share.

Lion acquires shareholding of WCB

Meanwhile, Lion justified an acquisition of a 9.99 per cent shareholding in WCB by saying it had “enjoyed a close relationship with WCB over many years” and that WCB played an important role in Lion’s cheese business.

Lion said it considered its stake a “continuation and strengthening of this relationship”.

Fonterra bid may change the WCB takeover bid game