Dairy co-operative Murray Goulburn has wrapped an 11th-hour takeover offer for Warrnambool Cheese & Butter in the Australian flag in an attempt to sidestep potential competition issues and win the hearts, minds and wallets of shareholders.
To this end Murray Goulburn has made a significant counter-offer of $7.50 cash to Warrnambool shareholders to satisfy the commercial hardheads. It has also pulled out the public/national-interest card to win over the farmers and rural community as well as to avoid a rejection from the competition regulator, something it tried in 2010 but then withdrew ahead of a likely knockback from the ACCC and a hostile board.
This time it has decided to exploit legislative changes made in 2007 that created a merger carve-out in the Australian Competition and Consumer Commission for mergers that might otherwise be prohibited under part IV of the act. Now a company can go the "authorisation route", by which it can go straight to the Australian Competition Tribunal, which allows the parties to argue that the merger has substantial public benefits even if it lessens competition.
The takeover offer will make an interesting test case as it is the first time the tribunal has been called on to authorise a merger on public-interest grounds. Using this carve-out leaves the ACCC itself on the sidelines, playing a minor role in the decision making. Instead it will provide a report to the tribunal giving its views on the merger proposal and where it sees the benefits. But at the end of the day it will be up to the tribunal, not the ACCC, to decide.
Up until 2007 applications for authorisation were made directly to the ACCC. Its last case was in 2005, when two hospitals in Launceston applied to merge. The ACCC approved the merger on public-interest grounds.
It explains why jingoism will be an important weapon in the $420 million cash takeover bid for a company that was on the verge of falling to Canada's Saputo at $7 a share, after the Warrnambool board rejected a cash-and-scrip offer from Bega Cheese Ltd earlier this week.
Murray Goulburn boss Gary Helou didn't hold back at a media briefing after lobbing the bid: "Our sector is overcrowded, substandard and largely foreign owned and [they] ... are not doing the job for Australia. Unless we arrest this we will become a net importer in 15 years."
They were strong words and they will resonate with dairy farmers in Australia who have been doing it tough in the past few years and have been frustrated by how well their New Zealand cousins have been doing and the relatively untapped opportunities in Asia.
What he will be arguing is that if Murray Goulburn is successful it will be the farmers taking back the power. As a co-operative, if it successfully merges with the cheese and butter group, the profits will be used to pay higher farmgate prices for milk. This will help the farmers reduce debts and reinvest in the community. If it goes to the Canadians or Bega, it will result in lower milk prices and the profits will be distributed to shareholders who don't necessarily have a direct connection to the rural sector or the farms.
It is a powerful public-interest argument that will be used to persuade the tribunal to give the merger the all-clear.
But whatever the case, the move by Murray Goulburn to enter the fray with a $7.50-a-share cash offer (which is higher than the figure Warrnambool's independent experts valued the company at) puts its shareholders in a win-win position because the co-op already holds just over 17 per cent of Warrnambool. If its offer is approved the merged entity will become a top 20 dairy company globally; and if it is rejected but triggers a counter-offer it will gain a windfall on what was looking like a done deal for Saputo as late as Thursday.
But there is a bigger picture at play than just money and that is what Murray Goulburn will be drawing on. Put simply, the Warrnambool share registry is held by up to 40 per cent of dairy farmers and another block of shares is held by former suppliers who still live in the rural community and have a strong aversion to foreign companies buying up Australian land, or food and agricultural companies.
The nationalism card has already been raised in the foreign takeover bid for grain handling operator GrainCorp, with the Nationals and farmers vehemently opposing. It is now in the hands of the Foreign Investment Review Board.
With so much land and Australian agricultural businesses being sold to foreigners, including wheat handler AWB, Dairy Farmers, National Foods and others, there is a growing concern that Australia could have done more with the mining boom and now it is throwing the soft commodities boom away by selling the companies to foreigners.
Southern Highland News recently reported Indonesia planned to buy a million hectares of Australian farmland to raise cattle for the Indonesian market to counter record high beef prices. It went on to say: "More than 11 per cent of the sheep, beef, cattle and grain farming industries reported some level of foreign ownership - totalling about 44 million hectares." Austrade figures support this data, showing the Northern Territory has the highest level of foreign land ownership, at 23.8 per cent.
Indeed Nationals senator John Williams said on Friday if an Australian company such as Murray Goulburn wanted to buy Warrnambool and was offering more than a foreign company, then there should be no issues. A generous price and nationalistic arguments make powerful bedfellows.