Bega won't overpay for WCB: Irvin

Barry Irvin, chairman of Bega Cheese (BGA), is not waving the white flag but says he isn’t going to overpay to acquire Warrnambool Cheese & Butter Factory (WCB).

Bega is offering 1.5 of its shares plus $2 cash for Warrnambool for 83% of the Victorian dairy producer it doesn’t currently own.

But the Bega bid, at the close of trading yesterday, was hardly cheered by investors.

Bega’s shares fell 13 cents, or 2.8%, to $4.45, valuing its Warrnambool bid at $8.675.

That’s inferior to Murray Goulburn Co-operative Ltd’s $9 cash offer for Warrnambool, whose shares on Thursday closed at $9.10.

Irvin argues that Bega’s bid is attractive because it is unconditional. It closes on November 28.

“My perspective is that there is a point where we make an offer that makes sense for Bega shareholders and offers value to Warrnambool shareholders,” Irvin told DataRoom. “We put our best foot forward.”

Rivals have looked down on Bega’s offer but it perhaps stands as much of a chance of succeeding as any other.

Murray Goulburn’s bid will probably run into objections from regulators who do not wish the number of major milk buyers in western Victoria and eastern South Australia to dwindle from three to two.

Warrnambool, Fonterra and Murray Goulburn are the three major milk buyers in the area.

Saputo Inc, which may at least match Murray Goulburn’s offer, risks having its plans to acquire Warrnambool blocked by Murray Goulburn, Bega and Kirin Holdings Inc who together hold 46% of Warrnambool’s shares.

The key for Warrnambool’s bidders is to convince Kirin to support their bid. Kirin owns, through its unit Lion, 9.99% of Warrnambool.

If Saputo removes conditions on an increased bid of $9 or higher, then some believe it may tempt individual investors to sell their shares to the Canadian diary giant.

Fund managers have largely sold out of Warrnambool, according to analysts.

Murray Goulburn managing director Gary Helou, who has ambitions to create a diary cooperative in Australia that rivals New Zealand’s Fonterra, must be kicking himself for not accumulating more Warrnambool shares when he had the opportunity, or follow Fonterra and buy Bega shares.

Fonterra in the last month has acquired a 6% stake in Bega while Helou failed earlier to take Warrnambool shares under its dividend reinvestment plan that could have increased Murray Goullburn’s shareholding above its current 18%.