Bega mulls higher bid for WCB

Bega Cheese (BGA) chairman Barry Irvin says the company will think about whether to raise its bid for Warrnambool Cheese and Butter Factory (WCB), once the Australian Competition and Consumer Commission makes a ruling on Bega’s takeover offer for its Australian rival.

“We do reserve our right to review our bid,” Irvin told DataRoom. “We’ve got a number of weeks to think about it.”

The ACCC has proposed a date of October 31 to release the competition ruling, according to its web site.

In a report on Monday, KPMG Corporate Finance said that Bega’s offer was neither fair nor reasonable. It valued Warrnambool stock at between $6.96 and $7.49 a share, and concluded that Bega’s offer consideration was between 17.1% and 18.9% lower than its assessed valuation range for WCB.

Bega’s offer of 1.2 share of its stock plus $2 cash values its bid for Warrnambool at 1407 AEST at $6.66 a share. Canadian rival Saputo Inc has offered of $7 a share and with franking credits its offer may be as much as $7.56.

Warrnambool shares at 1407 AEST were trading at $7.24.

Irvin says KPMG’s analysis capped Bega’s stock value at $3.60 compared with its current price of $3.88. That, he says, is incorrect, as is its analysis that Warrnambool can maintain earnings before interest, tax, depreciation and amortization of $46 million to $48 million per annum. Over the last 10 years, Irvin says, Warrnambool’s EBITDA has been on average about $27 million.

Warrnambool Chief Executive David Lord says KPMG’s analysis makes Saputo’s takeover offer “compelling”.

“It’s a cash offer, uncomplicated and clean,” Lord told DataRoom. “On another level Saputo has committed itself to maintain Warrnambool’s operating plants and employees. Bega, by putting the two companies together, may rationalise the business further by closing some plants while its strategy for marrying a domestic producer with an export-oriented company sounds nice but does not have a whole lot of substance.”

Lord says Bega’s chairman may have to raise his offer to reflect KPMG’s analysis of the value of Warrnambool’s shares.

“Bega has to come up with an offer that fully reflects Warrnambool’s value,” he says. “KPMG’s analysis highlights that Bega’s offer is neither fair nor reasonable.”

Saputo has given Lord and the Warrnambool board a guarantee the Canadian company will invest in new dairy capacity and that Warrnambool will “be the center of Saputo’s sourcing for the Asian market”.

Lord says he has been in contact with Murray Goulburn Co-operative Co, an 18% shareholder in Warrnambool, but has “received no indication” whether Murray Goulburn supports the Saputo or Bega bid.

Murray Goulburn declined comment to DataRoom.

Warrnambool is being advised by CIMB, Saputo by Rothschild and Rabobank and Bega by Kidder Williams.

Eureka Report flagged the potential for a takeover bid on Warrnambool before Bega's offer in 10 stocks in the takeover spotlight.