Lion uses 10% stake as buy-in to Warrnambool negotiations
Japanese-owned dairy, beer and wine group Kirin has thrust itself into an increasingly furious and costly three-way takeover battle for Warrnambool Cheese & Butter as it seeks to use a blocking stake to protect the viability of its cheese brands Coon and Cracker Barrel.
In a hectic, not to mention expensive, day on the sharemarket on Tuesday, Lion used its deep pockets to seize a 9.99 per cent strategic stake in WCB, triggering a frenzied wave of buying that pushed shares in the Victorian dairy group up more than 10 per cent.
Hitting a high of $9.30, it drove the market capitalisation of WCB - which last financial year posted a profit of $7.5 million - to just under $500 million, with three suitors circling the company and poised to push the price tag higher.
Lion outed itself as the mystery buyer of a 9.99 per cent stake in WCB, seeking to buy its shares reportedly at about $9.25, against the Monday closing price of $8.36.
The sharemarket raid by Lion, whose owner Kirin paid $3.1 billion for National Foods in 2007 and $910 million for Dairy Farmers in 2008, comes as Bega Cheese, Murray Goulburn Co-operative and Canada's Saputo are locked in a bidding war for control of the Victorian dairy group.
Shares in the company have more than doubled since Bega fired the opening shot in September, with foreign player Saputo recently lobbing an offer of $8 per share on the table to knock out Bega and Murray. The board of WCB has unanimously recommended Saputo's revised cash offer.
But with Lion throwing its weight around, the takeover battle has become more complicated.
"Lion confirmed that it has acquired a shareholding of 9.99 per cent in WCB," the company said in a statement on Tuesday night.
"Lion has enjoyed a close relationship with WCB over many years and WCB plays an important role in Lion's cheese business.
"Lion considers this stake a continuation and strengthening of this relationship."
Lion is thought unlikely to want to buy the company, especially not at these hefty prices.
Rather it has bought itself a crucial seat at the table with the strategic move designed to safeguard its cheese deal with the Victorian dairy group.
WCB produces all Lion's entry level cheese brands, Cracker Barrel and Coon, at its Allansford plant, with a Lion factory next door cutting, wrapping and sending the cheese to supermarkets and other retail customers.
Lion is eager for that relationship to continue if WCB falls into the hands of new owners, with the basic Australian cheese market very much reliant on low prices and efficiency drives to remain competitive against private label cheeses.
The dairy business has been tough for Lion since it emerged in the industry with National Foods and Dairy Farmers under its ownership. In 2010, Kirin wrote down the value of Lion Dairy's goodwill and brands by $485 million, conceding it paid too much for the assets when it bought National Foods from San Miguel.
Last year, it wrote off more than $1.2 billion for its dairy and food businesses as deteriorating trading conditions and intense price competition from private label brands in the supermarket shelves destroyed more goodwill.