Canadian analysts believe Saputo will have to sweeten its $390 million bid for Warrnambool Cheese and Butter, as local dairy outfit Bega Cheese continues to circle the company.
WCB's shares have rocketed past Saputo's all cash offer of $7 a share, indicating a bidding war could erupt with Bega. The shares have risen 12.3 per cent in the past two days to $7.26, lifting WCB's market capitalisation to $406.3 million.
Saputo won't say if it plans to raise its bid, while Bega says its offer is adequate, believing the Canadian company has a slim chance of obtaining at least 50.1 per cent of WCB.
Analysts at CIBC World Markets do not believe Saputo's offer will be successful, given Bega's continued interest and the fact it owns 17 per cent of WCB, with rival Murray Goulburn holding a similar stake.
The WCB board has recommended Saputo's bid, with chief executive David Lord describing it as a "compelling" offer.
In contrast, he said Bega's bid was "highly opportunistic" and did not reflect the true value of WCB.
Bega has offered $2 cash plus 1.2 of its own shares, valuing WCB at $6.38, or about $352 million at Wednesday's close.
But Bega adviser David Williams, of Kidder Williams, hit back, saying the Saputo premium wasn't high enough. "You have got an 11 per cent premium over our bid as of [Monday]. I don't think that's a big enough premium to get people to go away from a combination with Bega to a unknown foreign player," he said.
Saputo is one of the world's top 10 dairy companies. Chief executive Lino Saputo said the company had made 22 acquisitions worth $C4.2 billion in Canada, the US and Argentina in the past 15 years.
Mr Saputo said although new products would be introduced, WCB's existing brands would be retained. "Our primary focus is to service the local [Australian] demand, first and foremost, to the degree that we are able to produce value-added products and generate good returns for the company," he said.
"Beyond that we will look at other value-added opportunities."
The offer is subject to approval from the Foreign Investment Review Board.