Dairy battle enters the 'silly zone': analyst
The North American dairy dynamo is locked in a three-way bid for WCB with Murray Goulburn - Australia's biggest dairy company - and NSW-based Bega Cheese.
On Friday, the Australian Takeovers Panel banned Saputo from buying WCB shares for at least two months after Murray Goulburn protested that the Montreal-based company had "misinformed" shareholders about the true value of its bid.
Despite the latest hurdle, Canadian analysts say the bidding war has become "political" and "dangerous".
Murray Goulburn increased its bid to $9.50 a share cash, trumping Saputo's $9.20 and fuelling speculation the price tag could rise close to $10 a share.
But fund manager John Stephenson, of First Asset Investment in Toronto, said Saputo investors were becoming jittery.
"I think it's starting to get to the silly zone where the deal dynamics are driving this," he said, adding anything above a 10¢ rise would be "a bit of a worry".
"They can probably make this work at $9.50 or maybe $9.60, but if they are going to chase this up to $10, I think that's crazy."
Saputo has limited growth opportunities in Canada and is planning to use WCB as its entry point into Australia and the lucrative Asia-Pacific market.
It has been patient, eyeing WCB for the past 12 years. It was only when Bega Cheese ignited the takeover battle in September that Saputo made its move, first with $7 a share offer, before the bidding war went into overdrive.
Mr Stephenson said while Saputo's expansion made sense, the competition from Murray Goulburn pitching itself as a farmer-owned alternative had become political "and that's a little dangerous".
Frequently Asked Questions about this Article…
Saputo's reputation is at risk because the bidding war for Warrnambool Cheese & Butter has entered what analysts call the 'silly zone.' This suggests that the dynamics of the deal are becoming irrational, potentially leading to overvaluation.
The companies involved in the bidding war for Warrnambool Cheese & Butter are Saputo, Murray Goulburn, and Bega Cheese.
The Australian Takeovers Panel banned Saputo from buying WCB shares for at least two months after Murray Goulburn claimed that Saputo had 'misinformed' shareholders about the true value of its bid.
Murray Goulburn has increased its bid to $9.50 per share, surpassing Saputo's offer of $9.20 per share.
Saputo investors are becoming jittery because the bidding war is driving the price higher, and anything above a 10¢ rise is considered worrisome by analysts, potentially leading to overvaluation.
Saputo plans to use the acquisition of Warrnambool Cheese & Butter as its entry point into the Australian and Asia-Pacific markets, as it has limited growth opportunities in Canada.
Saputo has been eyeing Warrnambool Cheese & Butter for the past 12 years, but only made its move when Bega Cheese initiated the takeover battle in September.
The competition for WCB is considered 'political' and 'dangerous' because Murray Goulburn is pitching itself as a farmer-owned alternative, adding a layer of complexity and risk to the bidding war.
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