Warrnambool rejects Bega in favour of Saputo

The dairy producer says its rival is not offering enough for its stock and recommends Saputo’s offer,

Warrnambool Cheese and Butter Factory Ltd’s board of directors have told their shareholders to reject Bega Cheese Ltd’s takeover offer as it is “highly opportunistic and fails to reflect the value of a number of recent business improvement initiatives”.

Bega is offering 1.2 of its shares plus $2 cash to acquire Warrnambool, worth some $6.64 a share at 1200 AEST. Saputo Inc is offering $7 cash a share for Warrnambool; with franking credits the Canadian dairy operator claims its bid is worth $7.56 a share.

“The Saputo offer is superior to Bega’s offer,” Warrnambool chairman Terry Richardson says in a statement. “Bega’s offer does not reflect the strategic value of Warrnambool to Bega (and) is timed to exploit recent gains in Bega’s share price.”

Warrnambool also says the Bega takeover offer could expose its shareholders to tax liabilities.

Average multiples paid for dairy takeovers in Australia are 10.9 times earnings before interest, tax, depreciation and amortization, says Warrnambool. Bega’s offer on an enterprise value divided by EBITDA is 8.2 to 8.6 times.

Warrnambool’s 2014 pro forma EBITDA forecast is $51.1 million.

The target company says that Saputo plans to retain the company name and identity, invest in its Allansford and Mil Lel manufacturing facilities, and grow brands such as Sungold and Great Ocean Road while exploring export opportunities. The Canadian company intends to retain Warrnambool employees and management.

KPMG has valued Warrnambool’s stock at between $6.96 and $7.49 a share. At 1200 AEST Warrnambool’s shares were trading at $7.21.