Fonterra buys 6% Bega stake

DataRoom: NZ dairy giant takes Bega stake on hopes it will win battle for WCB.

When trading begins today, Bega Cheese’s (BGA) share price is likely to surge past $5 after the world’s largest diary company, Fonterra, bought a stake in the New South Wales dairy producer. Bega is currently in pole position to acquire Victorian rival Warrnambool Cheese & Butter Factory (WCB).

In a statement, Fonterra said it has acquired a 6% shareholding in Bega, purchasing 9.3 million shares at $4.95 per share for a total cost of $46 million.

Fonterra Chief Executive Theo Spierings said Australia remained an important market for Fonterra and the group was committed to growing its already strong presence here.  

"There has recently been a lot of consolidation activity in the Australian dairy industry. It is important that Fonterra participates, and we have confidence in Bega and the strategy it is pursuing," said Mr Spierings.

DataRoom understands the acquisition was done through brokers at Goldman Sachs Group Inc.

“Knock yourself out Fonterra,” Bega’s advisor David Williams of Kidder Williams Ltd toldDataRoom yesterday of Fonterra's touted purchase. “We’ve got a tightly held and loyal shareholders register and a constitution limitation that prevents any one shareholder from owning more than 10 per cent.”

Fonterra, which distributes Bega’s brands in Australia, wants its voice heard in the Bega boardroom after the company received clearance by the Australian Competition and Consumer Commission to acquire Warrnambool.

Bega is offering 1.2 of its share plus $2 cash to Warrnambool shareholders. If Bega’s stock does rise above $5 tomorrow, its takeover offer will be superior to Canada’s Saputo Inc. that has offered $8 in cash for Warrnambool.

But Saputo has to get Foreign Investment Review Board Approval.

More importantly, Bega and Warrnambool’s other bidder, Murray Goulburn Co-operative Ltd, together hold about 35 per cent of Warrnambool’s shares.

On Tuesday Lion, owned by Kirin Holdings Ltd, purchased 10 per cent of Warrnambool by buying shares on the market through broker RBS Morgan.

These three companies now own about 46 per cent of Warrnambool and are seeking to block a takeover of Warrnambool by Saputo whose offer is conditional on 50.1 per cent acceptance.

Lion, Murray Goulburn and Bega don’t want Saputo muscling in on their domestic market or brushing it aside in Asian markets.

Murray Goulburn, which has offered $7.50 a share to acquire Warrnambool, may not get approval to take over the company.

The ACCC does not want the number of buyers of milk in south western Victoria and eastern South Australia to fall from three to two.

Warrnambool, Fonterra and Murray Goulburn are the major dairy buyers for farmers in those regions.

David Williams, advisor to Bega that launched the takeover battle for Warrnambool last month, has been prescient.

Williams has surveyed and correctly analysed that all Bega had to do was to be patient. Its competitors, Saputo and Murray Goulburn, would face more substantial roadblocks than Bega in their desire to acquire Warrnambool.

Moreover, if Bega’s shares continue to rise the company may not have to boost its Warrnambool offer whatever Saputo and Murray Goulburn may do.