DataRoom AM: Kirin's cheese wedge

If two’s company, and three’s a crowd, what’s five?

What started as an uncomfortable dance between Bega and Warrnambool Cheese and Butter now includes three other players. The latest entrant into the cat-and-mouse game is Japan’s Kirin Holdings, which isn’t interested in a takeover, but will play a major role in deciding which party wins the day.

Elsewhere, Retail Food Group readies for an acquisition, Veda’s IPO receives a further boost through a lofty valuation and Coalition tensions bubble over the proposed GrainCorp takeover.

Warrnambool Cheese and Butter, Saputo, Kirin Holdings, Bega Cheese, Murray Goulburn, Fonterra

After a timid day on Monday with no price action and a lack of fresh news, yesterday we learnt Japanese-based Kirin Holdings, the owner of National Foods in Australia, had taken a 9.99 per cent strategic stake in Warrnambool Cheese and Butter. It represents the most substantial twist in the bidding war since Canada’s Saputo entered the fray.

The deal essentially ties up 46 per cent of WCB stock with interested parties: 10 per cent with the strategic Kirin, 17.7 per cent with bidder Murray Goulburn and around 18 per cent with fellow suitor Bega Cheese. All three harbour desires to keep Saputo away from the Australian market.

Indeed, in one fell swoop Saputo’s position as frontrunner may have been taken away.

Unless it can find a way to appease one of the three, its chances of reaching 50.1 per cent acceptances appear remote.

Kirin’s interest relates to a supply deal it maintains with WCB in relation to its Coon cheese brand. It is thought Saputo will not be keen to maintain this agreement should it wrest control, potentially leaving Kirin to play the role of kingmaker with the two Aussie firms.

The Japanese group’s enthusiasm to get itself a seat at the table led it to pay a premium for shares on the market, up to 16 per cent above Saputo’s current bid price.

Meanwhile, New Zealand dairy giant Fonterra lies in waiting, though it is widely considered unlikely to bid. It has, however, confirmed the hiring of Reunion Capital Partners to advise on the “current corporate activity in the dairy sector”. Fonterra, too, may look at gaining access to a blocking stake, though the availability of stock is becoming an issue.

With all this action it’s little surprise WCB shares rose as much as 11 per cent yesterday before closing 5 per cent higher. Bega too attracted plenty of interest, gaining 4 per cent after climbing as much as 13 per cent above its Monday close.

The Bega share price movement is important as it raises the group’s cash and scrip deal significantly from where it was at the start of this process. It is now around $1/share higher than where it began the process, though still lower than the offers of Murray Goulburn and Saputo.

Retail Food Group, Retail Zoo, Boost Juice

An acquisition appears near for franchisor Retail Food Group as it pursues a fresh capital raising.

The owner of Donut King, Brumby’s and Michel’s Patisserie, among other franchises, entered a trading halt yesterday ahead of what The Australian Financial Review believes will be a $45 million to $55 million cash injection.

The news of a boost to its cashflow came as the group informed the market it was actively chasing acquisitions on the back of last year’s $41 million Crust Pizza buy.

“There currently exists a plethora of motivated vendors within the market, and the present environment presents an attractive period for the company to grow via acquisitive activity,” chief executive Tony Alford said.

“The company is presently investigating a number of earnings accretive acquisition opportunities and will keep the market appropriately informed.”

The companies on their radar are not known, though RFG would no doubt be interested in Retail Zoo, the owner of Boost Juice, and Salsa’s Fresh Mex grill, which is reportedly pursuing a trade sale or IPO.

Veda, Pacific Equity Partners

IPO candidate Veda should be in line for a strong first day of trading as valuations come in for the credit checking company.

A Citigroup report has said the Pacific Equity Partners-owned group is worth $1.3 billion to $1.5 billion, according to the AFR. That is a range at the top end – or above – where money has been raised through the underwriting process.

The group’s management team will present to potential investors in Melbourne today, with its first day of trading on the ASX expected to be in early December.

So far the group has received plenty of support with cornerstone investors already seizing much of the available stock.

UBS and Citi are the joint lead managers of the float, which is likely to raise close to $350 million.

GrainCorp, Archer Daniels Midland

Opposition from within Coalition ranks to the $3 billion bid for grains handler GrainCorp by Canada’s Archer Daniels Midland remains high ahead of a final decision from treasurer Joe Hockey in around six weeks’ time.

It has long been known the National party was against the move, along with a smattering of country-based Liberals, but the issue has largely gone silent since the election. 

It appears that is a sign of work being done behind closed doors rather than a sign of acceptance.

According to the AFR, resistance is actually growing, with the Nats holding an internal meeting last week to discuss a deal they believe could create a virtual monopoly at the expense of Aussie grain growers. 

The issue will likely come to a head on November 12 when the first joint party room meeting is held, according to the paper.

It's a thorny issue for Prime Minister Tony Abbott and Joe Hockey. They can't call Australia "open for business" and then block this takeover on national interest grounds without meeting plenty of criticism. Meanwhile, approving the deal will cause ructions with their Coalition partners.

Perhaps the most likely circumstance is approval with conditions. We will find out for sure on December 17.

Wrapping up

Dexus Property Group has said it’s content biding its time on an offer to buy the Commonwealth Property Office Fund. The joint venture proposal with Canada Pension Plan Investment Board has failed to attract the interest of CPA’s managers but talks are ongoing, the group informed investors yesterday. The price of CPA securities remains 4 per cent above the offer price.

Elsewhere, Australian Associated Press is offloading its Australian and New Zealand media monitoring business to iSentia, the company formerly known as Media Monitors, according to The Australian. The price for the 250-strong client has not been disclosed.

Finally, Stockland Group has sold its 11.6 per cent stake in FKP Property Group for $107 million.