WCB suitor reveals its worldwide ambitions

Canadian food giant Saputo's ambitious growth plans for its takeover target Warrnambool Cheese & Butter are not just anchored to the booming Asian region, as it looks to forge a new Australian platform that will export cheese, powder and other dairy products to emerging markets around the world.
By · 11 Nov 2013
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11 Nov 2013
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Canadian food giant Saputo's ambitious growth plans for its takeover target Warrnambool Cheese & Butter are not just anchored to the booming Asian region, as it looks to forge a new Australian platform that will export cheese, powder and other dairy products to emerging markets around the world.

Saputo, which is one of the 10 largest dairy processors in the world with annual sales of $C8.6 billion, believes WCB will complement its bulging portfolio of US and Argentinian-sourced dairy goods as its salesmen visit nearly 50 countries a year to generate export sales.

Lino Saputo jnr, the chief executive of Saputo, has lifted the veil on his company's strategic drive and goals for its $8 cash-a-share takeover offer for WCB, telling analysts at the weekend its $450 million grab for the Victorian dairy group was one of a handful of acquisitions he was working on at present.

However, although Mr Saputo said WCB's growth plans and strategic direction were not that different from Saputo's view of the global dairy industry, he cautioned against a rush into the lactoferrin market by some players, which could see prices collapse for the highly specialised protein derived from milk, crunching profitability.

WCB has built its takeover defence partially around the future potential value of its burgeoning lactoferrin operation, trumpeting only two weeks ago it had signed a deal to negotiate the distribution of its locally produced lactoferrin in China, Hong Kong and Taiwan. WCB is also building a new plant to produce lactoferrin, a key ingredient in infant formula.

But Mr Saputo called the market for lactoferrin "a very, very small market".

He also said during the Canadian dairy empire's second-quarter earnings update that he was impressed with WCB's existing management and that if his takeover of the company was ultimately successful he would be happy to see incumbent chief executive David Lord stay on as president of Saputo's newly acquired Australian dairy business.

Meanwhile, investors are waiting to see if any of WCB's three suitors will lift their bid this week to trump the latest and highest offer from Saputo to seize control of the Victorian dairy group.

NSW dairy company Bega Cheese may jump first to lift its bid of $2 cash plus 1.2 Bega shares, with third bidder Murray Goulburn also in deep talks with its owners, advisers and bankers to see if it can up its own offer of $7.50 made last month.

Mr Saputo was questioned at length by analysts at the weekend on the rationale for his $8 bid, valuing WCB at just under $450 million, and the role the acquisition would play within the growing Saputo global group.

He revealed WCB would not just be a platform to sell dairy products into China.

"I want to make it clear that the platform in Australia for us is not exclusively for the Asian market," Mr Saputo said.

The key for Saputo was Australia's international focus when it came to dairy.

"Australia is a net exporting country. And so, if we are able to acquire milk at international levels and we're able to process it into a number of different categories of products, not just powders, but powders could be very profitable as well," he said.

"If we are able to manufacture cheeses and we're able to manufacture a wide range of dairy products that are in high demand in these emerging markets, then it gives us an additional platform by which our sales folks can get out there and say, look we can offer you product from the United States, we can offer you product from Argentina and now we can offer you product from Australia.

"So for us, we've been talking about this Australian platform for the better part of 12 years. Again, our approach is that we think it could be a good, strong platform for us, but for all emerging markets, not just for the Asian market."

He signalled he would be happy to see WCB boss David Lord stay on in his role if Saputo emerged successful from the three-way bidding war.

"I've had really the pleasure of being able to travel the landscape, the Australian landscape, with David Lord. And I tell you, he is as good as any one of the presidents in any one of our divisions and I would feel extremely comfortable having David manage that business on a day-to-day basis, provided that we give him the tools to be successful from our Canadian platform."

Mr Saputo also endorsed much of WCB's growth plans, suggesting as a new owner Saputo would not shake up much of the Victorian dairy group's operations, which could include its existing relationship with local farmers as well as its cheese joint venture with the Japanese-owned food group Lion.

"[WCB has] talked about the five-pillar orientation in terms of what the outlook for the business is, not very different from Saputo's orientation in terms of trading value for dairy, whether that would be domestic or international, innovating, investing in the business.

"So I see that there are a lot of similarities between the way that David is managing the business and the way that Saputo has managed the business."

Last month Lion bought a 9.9 per cent stake in WCB to give it a seat at the table for any takeover of the company and safeguard its joint-venture operations.

Later in a discussion with North American analysts, Mr Saputo said he had some concerns about a potential rush by dairy producers to get into the lactoferrin market, which could trigger reduced prices for the promising protein product and destroy value for the sector.

"Lactoferrin is a highly specialised protein derived from milk," he said. "There is a market for that, but albeit a very, very small market. If there are too many players that get into lactoferrin then the value of lactoferrin would go down and then ultimately the profitability will not be as good.

"And so, players of lactoferrin have to be very, very selective about the customers that they target and the markets they will want to be in. I think Warrnambool has determined they have an inroad with that market and they're prepared to make that investment."

Shares in WCB closed down 1¢ at $8.46 on Friday.
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