The Distillery: Murray Goulburn sours

Jotters say while Murray Goulburn’s sweetened WCB bid has bought it time, regulatory hurdles, farmer opposition and renewed rival bids could yet get in the way.

The ongoing stoush for control of Warrnambool Cheese and Butter Factory has yet to usher in a victor, with the battle only getting more heated over the past week. The latest move came from Murray Goulburn Co-operative, which put forward a bid of $9 a share that most commentators see as a move to buy time. But one scribe isn’t sure that’s enough, and expects the Competition Tribunal is poised to play spoiler.

Elsewhere, the positive reaction to Myer’s sales results yesterday leads one commentator to note just how subdued expectations are for the country’s major retailers.

First to the dairy takeover. Fairfax’s Malcolm Maiden outlines what we can expect now that Murray Goulburn has lobbed in a new offer.

“Saputo might walk, but it might also boost its bid, and perhaps drop a 50 per cent acceptance condition that is unlikely to be satisfied while 45 per cent of Warrnambool is in the hands of … Bega Cheese (18 per cent), Murray Goulburn (17 per cent) and Kirin's Lion group (10 per cent). Bega is beginning to look like a spent force, but anything seems possible in the amazing battle, and Warrnambool's board did the obvious thing on Wednesday when it told shareholders to sit tight. There was '’ample time to make a decision'’, the board said, and that would have been music in Gary Helou's ears.”

Business Spectator’s Stephen Batholomeusz agrees, putting forward a strong case that the latest bid has bought Murray Goulburn the time it needs, provided Saputo doesn’t respond with a counter offer.

“Murray Goulburn needs Australian Competition Tribunal approval for its offer, which could take months – potentially up to six months – so it needed to put something on the table to force the WCB board, which clearly prefers Canada’s Saputo, to take it seriously and give it time. At the values now placed on WCB, its board should only be considering issues of value.”

For now, the WCB board has said it will weigh its options, though it has shown little desire to engage with Murray Goulburn so far. And that shows little sign of changing, according to The Australian Financial Review’s Matthew Stevens, who relays word of tense discussions between WCB chair Terry Richardson and Murray Goulburn boss Gary Helou.

“The way we hear it, the last thing Richardson heard from Murray Goulburn’s acute and ambitious boss was a reminder of the chairman’s obligations to his shareholders and a bluntly expressed request for focus on the value owed to the owners rather than on how local community facilities might benefit from a deal.”

Again, Stevens discusses the notion of buying time, with Helou hopeful that a bid of such magnitude will leave WCB no choice but to engage or risk facing the wrath of shareholders. The Murray Goulburn boss had to raise the bid by such a level as to make the risk-reward decision easy for WCB.

The Australian’s Richard Gluyas, meanwhile, lists several problems for the new highest bidder, including a stretched balance sheet and resistance from the WCB board. But it’s the much-discussed regulatory clearance that could be the biggest sticking point, with the move to bypass the Australian Consumer and Competition Commission not as clear-cut as it looks.

“The ACCC… still has a role to play in cases before the tribunal, effectively acting as its research and analytical arm. That makes chairman Rod Sims' general commentary in September about the ‘national champion thesis’ all the more relevant. Sims made it clear to this columnist that he did not support the proposition that companies had to develop huge scale in the domestic market so they could compete effectively offshore.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd also sees roadblocks for Murray Goulburn, though his main worry is the group’s relationship with local dairy farmers.

“Raw cash speaks volumes in most take­over bids but the astute use of emotional intelligence is required when a third of the target share register is controlled by farmers whose livelihood will be affected by a change of control. The cultural issues are magnified by the fact that many of those same Warrnambool farmers have a simmering dislike of the organisation making the takeover offer. That dislike goes back a number of years when a large number of farmers were ­temporarily lured away from Warrnambool but were won back by lifting the price of milk at the farm gate.”

With all three suitors still facing significant hurdles, the fight might not be over before the year’s out.

In other company news, Myer’s improved quarterly sales go little way to convincing Fairfax’s Elizabeth Knight that the retail sector is on firm footing. According to Knight, the positive investor response shows just how weak expectations are in the market, rather than excitement about strong results.

Still, The Herald Sun’s Terry McCrann makes the case that Myer’s results outstrip those recorded at main rival David Jones in recent times, but it may be a case of ‘least worse’. And it is now very clear that the change in government hasn’t led to a significant loosening of consumers’ purse strings.

Meanwhile, the AFR’s Greg Earl discusses the potential for Australia to play a significant role in India’s drive to rebuild its infrastructure, while The Australian’s Rowan Callick notes the challenge in interpreting the ambitions of China’s leadership. A big question mark still hovers over the potential for a lucrative free trade agreement being signed between Australia and China.

Finally, the AFR’s David Bassanese argues we should stop worrying about rising asset prices and embrace there positive impact on the economy. That is, however, predicated on his view that asset prices remain outside bubble territory – and that is always a challenging argument given bubbles are only obvious once they are popped.

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