Bega to attract suitors

Bega Cheese, having started the ball rolling on industry rationalisation, could find itself a target.

The battle for the Australian dairy industry has only just begun.

If there is one certainty that can be taken in a three way tussle for control of any company, it is that at least one of the parties will make a counter offer.

And with the industry now firmly in the global spotlight, the vanquished bidders also are likely to attract the attention of potential suitors, particularly Bega Cheese (BGA) which kicked off this round of industry rationalisation.

Warrnambool Cheese and Butter (WCB) clearly believed it had seen off Bega Cheese when Canadian group Saputo entered the fray last week with an all cash $7 a share offer that trumped Bega's $6.64 cash and share combo offer.

The board endorsed the Canadian bid, extolling the virtues of the link up that it proclaimed would deliver huge benefits to its farmer shareholders via expanded marketing and distribution into Asia with a key ingredient for infant formula.

The Murray Goulburn Co-Op, having been spurned by Warrnambool back in 2010 when Bega played white knight, was seen as an unlikely combatant given its inability to tap equity markets and the fact its finances have been stretched by recent commitments to build new processing facilities as part of a deal with Coles.

This morning's $7.50 a share cash offer, by law, will have to be recommended by the Warrnambool board.

Saputo's offer was conditional upon 50% acceptance, an unusual condition, but one included to ensure it gained control of the company had Bega with 18% and Murray Goulburn with 17% refused to accept.

Bega so far has indicated that it would not raise its offer, and was hoping to appeal to farmer shareholders of the need for industry rationalisation as a counter to Saputo's more lucrative offer. That argument now carries no weight at all as Murray Goulburn carries the moral high ground with farmers along with a compelling cash imperative.

Given Bega's limited balance sheet, it is more likely the Canadians will counter with an improved bid, a move which the market clearly anticipates.

Should Murray Goulburn prevail, the combined group would be one of Australia's largest food and beverage enterprises with annual sales in excess of $3.2 billion, catapulting it into the top 20 global dairy producers.

Should the Canadians end up in control, both Murray Goulburn and Bega will be able to take comfort from the massive uplift in the value of their respective stakes.

And a potential tie-up between the two domestic producers, should they both miss out on Warrnambool, clearly would be a distinct possibility. Bega now must be considered a potential target.