Bega's bigger bid still sour

You have to admire Bega Cheese (BGA) for persistence. The company has mustered a higher offer for Warrnambool Cheese & Butter Factory Company Holdings (WCB) that is still inferior to a competing bid from Murray Goulburn.

Bega sweetened its initial offer to 1.5 Bega shares and $2 cash for every Warrnambool Cheese shares it doesn’t already own and declared its bid unconditional.

However, assuming that Murray Goulburn gets regulatory approval for the takeover, the only way Bega might still come out on top is to strike some deal with Murray Goulburn to share in the spoils of the bidding war, which has also drawn an $8 cash bid from Canada’s Saputo.

Some experts have pointed out the difficulty in getting Murray Goulburn and Bega to act cooperatively, but necessity has made stranger bedfellows.

Bega had initially offered 1.2 of its shares and $2 cash and its new bid values each Warrnambool Cheese share at around $8.70, given that Bega’s share price was sold off 2.4% to $4.47 this afternoon.

Murray Goulburn’s $9 offer is not only superior in value, but it is a cash bid. Cash bids tend to be more highly prized by shareholders, although some might argue that farmers owning shares in Warrnambool Cheese might want to keep some equity stake in the industry.

But farmers would still be better off taking the $9 from Murray Goulburn if they could and buying Bega shares on market. There is already a discount given the way Bega’s shares are trading, and this discount is likely to widen if it becomes clear to the market that Bega will end up the jilted lover.

From Murray Goulburn’s point of view, a deal to share Warrnambool Cheese’s assets could allay competition concerns that the Australian Competition & Consumer Commission (ACCC) may have.

Bega and Murray Goulburn have a shared goal of stopping the entry of a bigger dairy rival from entering the domestic market, and it isn’t only Saputo they have to fear as Japan’s beverage and dairy company Lion has gate-crashed the party by buying a 9.99% stake in Warrnambool Cheese.

Bega is part of the Uncapped 100.