Dairy farmers co-operative Murray Goulburn has wrapped an eleventh-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.
It has made a significant counter-offer in cash of $7.50 a share 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 avoid a rejection from the competition regulator, something it tried in 2010 but withdrew before a likely knock back from the Australian Competition and Consumer Commission and a hostile board.
This time around, it has decided to exploit legislative changes made in 2007, which created a merger carve-out in the ACCC for mergers that might otherwise be prohibited under Part IV of the act. A company can now take the "authorisation route", which enables it to 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 option leaves the ACCC 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.
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 regulator 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 earlier this week.
Murray Goulburn boss Gary Helou didn't hold back at a media briefing after lobbing a bid: "Our sector is overcrowded, sub-standard 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."
Strong words that 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 faring, and the relatively untapped opportunities in Asia.
What Helou will be arguing is that if Murray Goulburn is successful, it will be the farmers taking back the power. As a co-operative, if they successfully merge with the cheese and butter group, the profits will be used to pay higher farm gate 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 convince the tribunal to give the merger the all-clear.
Whatever the case, the move by Murray Goulburn to enter the fray with a $7.50 a share cash offer (higher than the figure Warrnambool's independent experts valued the company at) puts its shareholders in a win-win position because it holds a little more than 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 rural areas 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 the offer. 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 Australian wheat board AWB, Dairy Farmers, National Foods and others, there is a growing concern the nation could have done more with the mining boom and now it is throwing the soft commodities boom away by selling to foreigners.
Southern Highland News recently reported Indonesia planned to buy 1 million hectares of Australian farmland to raise cattle for its market, to address 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, there should be no issues. A generous offer price and nationalistic arguments make powerful bedfellows.