Dairy offer a fresh test for Hockey

Federal Treasurer Joe Hockey faces another foreign ownership test after the board of Australia's oldest listed milk processor unanimously backed a $390 million takeover bid from a Canadian dairy company.

Federal Treasurer Joe Hockey faces another foreign ownership test after the board of Australia's oldest listed milk processor unanimously backed a $390 million takeover bid from a Canadian dairy company.

Saputo, which has courted Warrnambool Cheese & Butter for much of the past decade, has made an all-cash offer of $7 a share.

It comes two weeks after WCB's board urged shareholders to reject a takeover offer from NSW-based Bega Cheese that valued the company at about $319 million.

But Bega believes the Saputo bid has only a "slim chance" of being approved by at least 50.1 per cent of WCB shareholders, considering that Bega and Murray Goulburn own more than 36 per cent of the company.

The Saputo offer is also subject to approval by the Foreign Investment Review Board, which has been considering a $3 billion takeover of east-coast grains handler GrainCorp from US agribusiness Archer Daniels Midland.

The GrainCorp proposal has been a headache for Mr Hockey, who has delayed making a decision until December. Before the election National Party leader, and now Deputy Prime Minister, Warren Truss attacked the ADM takeover, questioning whether it was in the national interest.

NSW farmers have also lobbied extensively against the proposal.

Despite this, WCB chief executive David Lord said he was "comfortable" with Saputo's offer. He said foreign investment during the past 50 years had strengthened Australia's dairy industry.

"I refer to Kraft, Nestle and Fonterra - three big international investors who came to this country and invested heavily in the dairy industry and grew it for the benefit of all the current participants," Mr Lord said.

"[The Saputo] deal provides compelling value for shareholders ... that's indisputable. It also provides security and opportunity for WCB's key stakeholders, its suppliers, employees and the wider community," Mr Lord said.

Investors warmed to the bid, with WCB shares surging 11.15 per cent to $7.18.

RBS Morgans analyst Belinda Moore said the offer was "very attractive", considering that if Saputo obtains 50.1 per cent of the company, WCB shareholders would be paid an additional fully franked dividend of 46¢ a share, which could rise to 85¢ if Saputo obtained 90 per cent.

Ms Moore said the proposal reflected the strategic nature of WCB's assets and it would be interesting to see if Bega beat the offer.

But Bega adviser David Williams, of Kidder Williams, believed that the NSW company has most WCB shareholders on its side, emphasising that Saputo must obtain at least 50.1 per cent of the company.

"Between Murray Goulburn and ourselves, we have about 36 per cent. Because of that our bid will stay on the table and we entirely expect to get some acceptances to it the way it is," Mr Williams said.

Saputo approached WCB about a takeover in October 2009 at an undisclosed price, but below $4 a share. Two months later, Saputo increased its offer to $4, and a few days later WCB rival Murray Goulburn arrived with a $3.80-a-share cash takeover proposal. But WCB's board said both offers were too low.

Saputo chief executive and vice-chairman Lino Saputo jnr said the company had been eyeing WCB for 12 years, recognising that its acquisition was key to its growth plans for the Asia-Pacific region.

He said there would be no rationalisation of staff or redeployment of assets. "We would see Warrnambool as a platform for growth in Australia and through which to expand into the Asia-Pacific region, working with Warrnambool's management to capture those opportunities," Mr Saputo said.

Saputo has already applied to the Foreign Investment Review Board and hopes to finalise the deal by early December.

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