Murray co-op butters up Warrnambool

Murray Goulburn boss Gary Helou says farmers have reached a "fork in the road" and must decide on the future of the Australian dairy industry.
By · 19 Oct 2013
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19 Oct 2013
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Murray Goulburn boss Gary Helou says farmers have reached a "fork in the road" and must decide on the future of the Australian dairy industry.

The comment came as his company launched a $420 million bid for Warrnambool Cheese & Butter, trumping Canada's Saputo.

The move marks the latest twist in the three-way battle for the western Victorian agribusiness since NSW-based Bega Cheese Ltd made its first move on WCB.

Murray Goulburn said it would offer $7.50 cash per WCB share. This tops the $7 cash offer from Saputo and represents 13 per cent premium to the implied value of Bega's scrip-based offer.

Shares in WCB jumped 56¢ to close at $7.98 on Friday.

A farmer-owned co-operative, Murray Goulburn is in a strong position as it already has an 18 per cent stake in WCB.

Combined, the two companies would create food and beverage businesses with annual revenue in excess of $3.2 billion. The combined milk supply of Murray Goulburn and WCB is forecast to be more than 4 billion litres in financial year 2014, ranking it among the top 20 global dairy producers.

Mr Helou said combining the two into a globally competitive co-operative was the only way farmers could meaningfully benefit from the growing demand for dairy overseas.

He said suppliers needed to consider the future of the local industry when deciding on the takeover bid. "What we are putting on the table is an offer for them to take a stake in every step in the value chain."

A Saputo spokesman said the Canadian group was "considering its options" in light of Murray Goulburn's announcement.

WCB told the market on Friday it had not been aware of Murray Goulburn's intentions to make an offer and was not yet in a position to respond.

Murray Goulburn has sought approval for the merger from the Australian Competition Tribunal, which means it could go ahead if it is proved to be in the public good.

The co-operative has entered into a new $350 million debt facility with National Australia Bank, ANZ and Westpac to finance the deal.

It said it believed the level of leverage after any transaction would be "appropriate" for a farmer-owned co-operative structure that was undergoing significant growth and investment.

Mr Helou said a combined co-operative would hope to deal with the decline in Australian dairy production.

He said a co-operative structure, like that of New Zealand dairy giant Fonterra, was the best way to do this while maintaining benefits for farmers.

"Asia is at our doorstep and we are not really connecting there."

The move by Murray Goulburn comes just days after WCB formally rejected Bega's $370 million bid by releasing an independent expert's report labelling the offer as "inadequate and inferior" to Saputo's proposal.

WCB had previously endorsed Saputo's offer, which values the 125-year-old Victorian dairy group at $390 million.

In linking with Saputo, WCB had also set its sights on the potentially booming infant formula market in Asia, saying it would use its infrastructure and dairy brands to take advantage of expected strong demand for the baby product in the region.
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