Bega now in play as diary battle heats up

The battle over Australia’s dairy assets is set to reach fever pitch, with two Australian companies now potential takeover targets in a scrum that includes five dairy players – three among the world’s largest.

New Zealand’s Fonterra became the latest group to enter the field on Thursday, with the dairy giant snapping up a 6 per cent stake in Bega Cheese after the market closed.

The play, worth $75 million, brings the fight over assets full circle, with Bega responsible for the opening salvo in a bidding war that escalated over Warrnambool Cheese & Butter, a dairy processor on Victoria’s western coast.

Warrnambool remains in play, but must compete for attention on a global stage with its NSW counterpart, Bega, a speculated target itself.

Canadian dairy major Saputo is currently the highest bidder for Warrnambool, with a cash offer of $8 per share. That offer was complicated this week when Japanese brewer and dairy company Kirin bought a 10 per cent stake in the Victorian company through its Lion subsidiary.

PAC Partners agribusiness analyst Paul Jensz said Saputo could be eyeing Bega as an alternative foothold in the Australian milk export market.

‘‘You’d think that a group like Saputo would be looking at their plan B, C and D now if Warrnambool doesn’t come to pass,’’ Mr Jensz said. ‘‘At least half of Bega is quite similar to Warrnambool’s export business, so that would be an alternative.’’

An adviser for Bega, David Williams, of Kidder Williams, played down the advance by Fonterra.

‘‘There’s a lot of interest in Bega. Is that speculation of a takeover? Maybe,’’ Mr Williams said. ‘‘Do people think we’re a good investment if we take over Warrnambool? I think so.’’ He said Fonterra had boosted the company’s confidence in acquiring Warrnambool. ‘‘It gives us more value for a takeover,’’ he said.

Shares in Bega shot up 9.5 per cent on Friday, to close at $4.83. Any attempt at a takeover would require the bidder to change Bega’s constitution which limits shareholders to a 10 per cent stake.

Mr Jensz said Fonterra’s stake gave Bega more firepower to increase its bid on Warrnambool, worth $7.74 per Warrnambool share. Murray Goulburn has offered $7.50 per share in cash.

‘‘Fonterra have effectively said they want to align themselves with Bega – not Warrnambool – in a domestic expansion plan,’’ Mr Jensz said. Shares in Warrnambool fell 3¢ to close at $8.27 on Friday.

Bega said it would hold a board meeting next week to discuss its next move.

Late on Thursday Fonterra picked up 9.3 million shares for $4.95 per share for a total cost of $46 million.

RBS Morgan analyst Belinda Moore said Fonterra could have several motives for the buy-in, from protecting a commercial business relationship to having a seat at the table in industry consolidation discussions.