Warrnambool battle could end in a stalemate
However, attraction to Australian listed agribusinesses, particularly those with exposure to Asian markets, remains strong in certain quarters. Warrnambool Cheese & Butter finds itself as the fair maiden, with multiple suitors asking it to the dance. Who's involved?
ASX-listed Bega Cheese owns 17.9 per cent of WCB. In mid-September Bega offered 1.2 of its shares and $2 cash per WCB share. Based on Bega's opening price on Friday of $4.49, this values WCB at $7.74 a share (a material increase from the implied $5.89 when its bid was launched as Bega's shares have been caught up in the frenzy).
Murray Goulburn, a farmer co-op and Australia's largest dairy processor, owns 16.8 per cent of WCB. Murray Goulburn offered $7.50 a share in mid-October.
Saputo, a Canadian-based dairy major that enjoys the support of WCB's board, bid $7 a share in early October and raised this to $8 a share on October 25 following Murray Goulburn's offer. Saputo had no interest in WCB as of that date.
Lion Dairy & Drinks - owned by Kirin Holdings of Japan - has this week reportedly paid $9.25 a share for a 9.99 per cent stake in WCB. Lion has stated that it does not intend to make an offer for WCB, but it does have a manufacturing arrangement with the company to produce Coon and Cracker Barrel brands up for renewal in 2015.
These key players collectively hold 44.7 per cent of WCB's scrip.
Before the Bega bid, WCB's shares closed at $4.51. The stock closed at $8.30 on October 31 for a market capitalisation of $465 million.
In a new twist Fonterra, New Zealand's big dairy co-op, snapped up a 6 per cent stake in Bega and was reportedly hunting around for stock to take a 10 per cent holding in Bega Cheese - the largest position a single shareholder can own in Bega under its constitution. Fonterra holds the rights to market Bega Cheese in Australia.
What are the bidders paying for?
WCB's underlying earnings before interest, tax, depreciation and amortisation has averaged $27 million in the six years to fiscal 2013. This includes a 2008 peak of $48 million and the fiscal 2009 trough of a loss of $6 million.
WCB management has forecast a fiscal 2014 earnings range of $47 million to $52 million, on par with its best year at least since listing. The forecast result is achievable as was demonstrated in 2008. The fiscal 2014 result will be supported by the impact of droughts in key supplier regions including North America and New Zealand over the past 12 months along with a weaker Australian dollar than in fiscal 2013.
Bloomberg consensus analyst earnings before interest, tax, depreciation and amortisation forecasts for fiscal 2014 are sitting at $43.3 million, approximately 60 per cent above the average since 2008.
Consensus forecasts appear to suggest this strong rebound in earnings represents a new base going forward.
History tends to suggest that the earnings of agribusinesses will revert to the mean over the medium term.
Using an $8.30 share price and even using consensus forecasts for robust fiscal 2014 earnings per share of 36.1 ¢, on a price to earnings per share basis WCB is now trading at 23 times forward earnings. This is materially higher than the 12.6 times price to earnings it has averaged over a full commodity price cycle since 2008.
WCB's dance is in full swing, but the greater risk is that with several interested parties holding blocking stakes a successful bidder won't emerge in the foreseeable future, causing a stalemate.
While it is possible that a new, potentially $9-plus bid may emerge, it is also possible that a stalemate could see WCB's share price begin to sag. In the three years before Bega launched its September bid, WCB's shares averaged $3.65. WCB shares have enjoyed a 127 per cent share price gain in the 12 months to October 31.
Frequently Asked Questions about this Article…
Warrnambool Cheese & Butter (WCB) is currently in the midst of a bidding war with several companies vying for control. The share price has seen significant fluctuations, closing at $8.30 on October 31, which is a substantial increase from its previous average of $3.65 before the bidding began.
Warrnambool Cheese & Butter (WCB) is currently at the center of a bidding war with multiple companies vying for control. The share price has seen significant fluctuations, closing at $8.30 on October 31, up from $4.51 before the bidding began.
The main companies involved in the bidding war for WCB are Bega Cheese, Murray Goulburn, Saputo, and Lion Dairy & Drinks. Each has made various offers to acquire stakes in WCB, with Bega Cheese and Murray Goulburn being significant stakeholders.
The main companies involved in the bidding war for WCB are Bega Cheese, Murray Goulburn, Saputo, and Lion Dairy & Drinks. Each has made offers or acquired stakes in WCB, with varying levels of interest and strategic intentions.
Bega Cheese offered 1.2 of its shares and $2 cash per WCB share, valuing WCB at $7.74 per share. Murray Goulburn offered $7.50 per share, while Saputo initially bid $7 and later increased it to $8 per share. Lion Dairy & Drinks paid $9.25 per share for a 9.99% stake but does not intend to make a full offer.
Bega Cheese offered 1.2 of its shares and $2 cash per WCB share, valuing WCB at $7.74 per share. Murray Goulburn offered $7.50 per share, while Saputo initially bid $7 and later increased it to $8 per share. Lion Dairy & Drinks acquired a 9.99% stake at $9.25 per share but does not intend to make a full offer.
WCB is attractive due to its exposure to Asian markets and its potential for strong earnings growth. The company has forecasted significant earnings for fiscal 2014, supported by favorable market conditions such as droughts in key supplier regions and a weaker Australian dollar.
WCB is attractive due to its exposure to Asian markets and its potential for strong earnings growth. The company has forecasted significant earnings for fiscal 2014, supported by favorable market conditions such as droughts in key regions and a weaker Australian dollar.
The bidding war could end in a stalemate due to several parties holding blocking stakes, which might prevent a successful bidder from emerging. Alternatively, a new bid over $9 could emerge, or the share price might decline if no resolution is reached.
The bidding war could end in a stalemate if no single bidder emerges victorious due to the blocking stakes held by various parties. Alternatively, a new bid over $9 could emerge, but there's also a risk that WCB's share price might decline if the stalemate persists.
WCB's earnings have varied, with an average of $27 million in the six years leading up to fiscal 2013. The company experienced a peak of $48 million in 2008 and a trough of a $6 million loss in 2009. For fiscal 2014, WCB has forecasted earnings between $47 million and $52 million.
WCB's earnings have varied, with an average of $27 million in the six years leading to fiscal 2013. The company experienced a peak of $48 million in 2008 and a trough of a $6 million loss in 2009. For fiscal 2014, WCB has forecasted earnings between $47 million and $52 million.
Fonterra, a New Zealand dairy co-op, has acquired a 6% stake in Bega Cheese and is reportedly seeking to increase its holding to 10%. This move is significant as it positions Fonterra as a key player in the ongoing WCB bidding war, given its rights to market Bega Cheese in Australia.
Fonterra, a New Zealand dairy co-op, has acquired a 6% stake in Bega Cheese and is looking to increase it to 10%. This move is significant as it positions Fonterra strategically within the ongoing WCB bidding war, given its rights to market Bega Cheese in Australia.
Investing in WCB during the bidding war carries the risk of a stalemate, which could lead to a decline in share price. Additionally, the high price-to-earnings ratio of 23 times forward earnings suggests that the stock is trading at a premium compared to its historical average, which could pose a risk if earnings do not meet expectations.
Investors face the risk of a stalemate, which could lead to a decline in WCB's share price. Additionally, the high price-to-earnings ratio of WCB shares, currently at 23 times forward earnings, suggests that the shares are trading at a premium compared to historical averages.
Call 1300 880 160
Start a chat
Schedule a call
