Warrnambool goes sour on Bega's $319m offer

A takeover offer targeting Australia's oldest milk processor, Warrnambool Cheese and Butter, is "highly opportunistic", seeking to capitalise on one of the worst dairy seasons in years, the company's board says.

A takeover offer targeting Australia's oldest milk processor, Warrnambool Cheese and Butter, is "highly opportunistic", seeking to capitalise on one of the worst dairy seasons in years, the company's board says.

WCB's board wrote to shareholders on Thursday, urging them to reject a $319 million bid by Bega Cheese. The NSW company made the unsolicited offer earlier this month, sending WCB's shares to record highs.

The offer was based on $2 cash and 1.5 Bega shares for each WCB share. The offer was significantly greater than a bid made by rival Murray Goulburn in 2010, which valued the company at $180 million.

But WCB chief executive David Lord said the Bega offer was "inadequate and does not reflect the fair value for WCB shares".

"Part of our argument is the Bega offer is highly opportunistic. We are at the end of possibly one of the worst years for dairy exporters," he said.

In the past year, dairy farmers and milk processors such as WCB and Murray Goulburn have been battling a high Australian dollar, low commodity prices and poor weather conditions.

Mr Lord said those factors had translated into a 3 per cent drop in milk volumes. But the start of this season looked promising.

"International prices have improved dramatically, there has been a fall in the Australian dollar relative to the US currency, as well as improved climatic conditions," he said. "What gave us headwind last season will actually give us some tailwind this season."

If the Bega offer is approved it would create one of Australia's biggest dairy companies.

Mr Lord and WCB directors acknowledged the potential power of the two companies in a statement to the ASX, but said the offer did not "reflect the strategic value of WCB to Bega Cheese". He added The bid was "timed to exploit recent gains in Bega's share price".

Mr Lord said WCB was preparing earnings guidance for this financial year. Shareholders would receive a target statement with WCB's formal response to the offer around mid-October. WCB shares closed 1.3 per cent higher at $6.18.

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