Chinese buyers contemplating Warrnambool bid

By Brett Cole

China Investment Corporation is backing a Chinese food group that is looking to acquire Warrnambool Cheese and Butter in yet another twist in the battle for control of the western Victorian dairy producer, now in its fourth month.

The investment arm of the State Council of the People's Republic of China is eager to make an investment that takes advantage of what it foresees as rapid food price inflation while Chinese food companies are seeking to secure dairy products for a protein-hungry public.
Warrnambool expects to double earnings before interest, tax, depreciation and amortisation to $58.6 million in the six months to December 31, compared with the year-earlier period.

The withdrawal by Bega Cheese from the takeover battle last Friday has accelerated Chinese efforts to try to mount a takeover bid after weeks of contemplating an acquisition of the 125-year-old company.

Bega has an 18.7 per cent stake in Warrnambool and could be enticed to sell to a Chinese bidder that offered $10 a share. Bega chairman Barry Irvin visited China last month and said he was meeting Chinese companies.
"We are very aware of Chinese interest in Australian dairy assets, but there is a lot of tyre-kicking, and my advice to the buyers if they are serious is: get an investment bank and take their advice," a senior M&A adviser said.

For more than a year, China Investment Corporation has contemplated acquiring Van Diemen's Land Co, which owns and operates 25 dairy farms with 30,000 dairy stock. Other Chinese companies have moved decisively amid concerns about their nation's safety standards.
In 2008, milk tainted with industrial chemical melamine killed at least six Chinese infants and left thousands ill. The tragedy damaged the reputation of Chinese food companies and increased the market share of foreign brands such as Danone and Nestle to 80 per cent in the infant formula market in major Chinese cities.

China's state-owned Bright Food (Group) bought Manassen, which supplies Australian retailers with local and international food brands, for about $500 million in 2011.

The Murray Goulburn Co-operative, which has a 17.7 per cent Warrnambool stake, may not be able to match a $10-a-share offer and could sell its shares to a Chinese bidder. The Melbourne-based co-operative's current $9.50-a-share bid for Warrnambool is subject to a ruling by the Australian Competition Tribunal, not expected until February next year at the earliest.

Kirin Holdings, which has a 9.99 per cent stake in Warrnambool, could be tempted to sell their shares to a Chinese bidder that offered $10.
Saputo, which is offering $9 a share, has a 17.9 per cent stake.
But 13.3 per cent of Saputo's shares are subject to withdrawal rights from Warrnambool shareholders by January 3, according to an ASX statement, following a Takeovers Panel order.

Moreover, Saputo's $9-a- share bid is final and could end on January 10, although the offer deadline might be extended by the Montreal-based company.
Bega's Mr Irvin has been contemplating selling his Warrnambool stake to Saputo. The Bega chairman does not want to risk holding shares that may fall in price after rising 105 per cent since Mr Irvin launched a takeover bid on September 12.

Rabobank and Rothschild, Saputo's investment bankers, have approached Kidder Williams, Bega's adviser, to try to get Bega's Warrnambool shares.