DataRoom AM: Rich cheese

WCB's stock is being driven up exponentially, while well-known names throw their weight behind’s float.

Ever since Saputo lobbed a revised $8-a-share bid the way of Warrnambool Cheese and Butter Factory, the market has been confident another offer will be forthcoming. However, few expected the next proposal to go as high as $9 a share. Now, for the third time in a week, there is a new leader in the race – but one expects Murray Goulburn Co-operative won’t stand alone for long.

Elsewhere, Equity Trustees reignites the battle for The Trust Company, famous names make a splash with the float and Fortescue Metals Group continues its ruthless balance sheet adjustments.

Warrnambool Cheese and Butter Factory, Murray Goulburn, Saputo, Bega Cheese

A few weeks ago Canada’s Saputo delivered an $8-a-share offer for Warrnambool Cheese and Butter Factory that had most declaring it the likely winner in the battle for the Victorian dairy firm.

Since then, the race has been turned on its head as first Kirin Holdings claimed 10 per cent of WCB (via subsidiary Lion) to potentially act as a blocking stake; then Fonterra bought a slice of Bega Cheese, which forced its shares up so high that its own cash and scrip offer surpassed Saputo’s all-cash bid.

Bega’s share price has since retreated such that its proposal is now again the weakest, at around $7.50 a share, based on yesterday’s closing prices. But Murray Goulburn has trumped all-comers by lifting its cash offer from $7.50 a share to $9 a share.

The Murray Goulburn bid, while large, is likely not a knockout blow but will buy it a little bit of time. And for Murray Goulburn, the only suitor with a regulatory question mark hanging over its head now that the Treasurer has given Saputo the all-clear, time is crucial.

Murray Goulburn needs to stall developments long enough so that it has the opportunity to receive regulatory approval from the Australian Competition Tribunal. That will be at least three months away, leaving it fighting an uphill battle to convince the WCB board it is worth waiting for, given there is a possibility the tribunal will block the request.

It’s now worth asking, however, has the bidding entered a stage where it is out of control? Where the heart, or ego, is ruling over logic?

Right now it’s a bit like an auction on a house with three families desperate to get their ‘dream home’. In such a circumstance the prospect of overpaying is high and, at $9, the case can easily be made that we have already reached that stage.

WCB is suddenly a company worth over $500 million – more than double where it was two months ago.

And investors, who pushed WCB shares above Murray Goulburn’s offer price yesterday, foresee another offer coming – likely from Saputo, at around the $9-$9.50 range. The Canadian dairy group still has the problem, however, of reaching 50.1 per cent shareholder acceptance, given that 46 per cent of WCB’s stock is held collectively by hostile competitors Bega, Murray Goulburn and Kirin.

Bega, too, is expected to raise its bid, though unless its share price climbs significantly, it’s unlikely to be able to compete with its larger rivals.

But for Bega the bidding war will still provide a nice little return on its 18 per cent WCB stake should it lose the battle.

IPO market,, National Storage, Dick Smith Electronics

Ahead of shares in going on-market at lunchtime on Friday, some high-profile names have been revealed as investors in the $17.5 million float.

Brad Shofer, co-founder of MYOB, and Seek co-founders Paul and Andrew Bassat have all claimed a slice of the company’s stock along with Joel Sng, whom Freelancer suggests was a “founding investor” in Facebook.

The hype around this had many in the media quite excited, but we are going to temper that buzz with the conclusion that you likely need a loose definition of ‘founding investor’ to put Sng in that category.

In fact, type ‘Joel Sng Facebook’ into Google and see just how little information there is about his involvement with the social network. Based on our research we would suggest his founding investment likely relates to taking a very small slice of the company when it floated on the Nasdaq. Either that or he offered a small financial investment in conjunction with a larger player a few years back.

However, he almost certainly had nothing to do with the early days of Facebook when the likes of Mark Zuckerberg, Sean Parker, Eduardo Saverin and Peter Thiel were involved.

Didn’t anyone watch The Social Network?

Regardless, we digress from the main game, which is that the heavily oversubscribed float has received more coverage than any IPO under $100 million in recent history. As such, expect a very strong first trading day on Friday, lifting the company’s market capitalisation well above the current value of $218 million.

Elsewhere in the red-hot IPO market, Dick Smith Electronics has raised $340 million in its IPO after strong demand saw the cornerstone part of the float heavily oversubscribed, according to The Australian Financial Review.

The strong interest has allowed Anchorage Capital Partners to reduce its stake to just 20 per cent and provided it a substantial windfall on its $94 million investment from 12 months ago.

Meanwhile, National Storage is still likely to be put on the market before the end of the year, with owner APN Property Group and lead advisor Morgan Stanley keen to strike while the IPO market is still hot.

Equity Trustees, Perpetual, The Trust Company, IOOF Holdings

The keenly fought race for The Trust Company was thought to have already been run and won, with Perpetual outbidding Equity Trustees and IOOF Holdings while receiving the backing of Trust’s board. But ahead of a shareholder vote on the takeover, Equity Trustees has made a last-ditch effort for control by raising its bid from 37 shares for every 100 Trust shares to 39 shares per 100.

The bid still leaves Equity’s valuation of Trust around $30 million shy of the current proposal put forward by Perpetual, but it does cast a little bit of doubt on the November 28 vote, especially given the Equity offer is now free from conditions.

The smart money, however, is on the higher bid winning the day and Equity eventually getting snapped up by a larger rival. That rival is most likely IOOF, which will receive a 13 per cent stake in Equity Trustees should Perpetual gain control of Trust. This is the result of an Australian Competition and Consumer Commission ruling that Perpetual dispose of Trust’s 13 per cent stake in Equity Trustees should it acquire the group.

Fortescue Metals Group

Andrew Forrest’s Fortescue Metals Group is relentlessly forging ahead with its cost-cutting and debt management plans. The latest move sees the iron ore miner pay back $1 billion worth of debt early, saving $70 million per annum in interest payments.

The development comes just after the group re-priced a term loan to save $50 million per annum and may not be the last adjustment to the balance sheet in the near term.

“The repayment of the 2015 notes is an historical turning point for the company and consistent with our well communicated strategy to repay the debt that funded our expansion,” chief executive Nev Power told shareholders.

“We have consistently delivered against our commitments and will continue to rapidly de-gear our balance sheet.”

The moves at Fortescue, which have also included significant cost-cutting measures, have been a response to a dark period last year when a collapsing iron ore price had shorters mercilessly attacking FMG’s stock. Since then the miner’s share price has more than doubled.

Investors welcomed yesterday’s move, sending the company’s stock 3 per cent higher in what was otherwise a dark day for the stockmarket.

Wrapping up

James Packer has strengthened his push to gain access to the Sri Lankan market. Packer is looking to overcome mounting opposition to his plans for a Crown casino in the country, arguing Sri Lanka has great potential to be “India’s Macau”. The question is now, do Sri Lankans really want that?

Closer to home, another major name in the gambling industry, Hong Kong’s Tony Fung, is looking to get access to the Australian casino market. Fung’s Aquis Casino Acquisitions has sent a $214 million takeover proposal the way of Reef Casino Trust in the hope of gaining control of the only casino in Cairns. The news pushed Reef shares up 40 per cent, to their highest level in six years.

Finally, K&S Corporation and Scott Corporation have committed to a $200 million merger. The news, which is essentially a friendly takeover by K&S, sent shares in Scott 14 per cent higher in yesterday’s trade.

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