Saputo Inc. says it’s pleased that a one-time rival has agreed to accept its offer for Warrnambool Cheese & Butter, putting the Montreal-based a big step closer to gaining control of the Australian company.
Bega Cheese Ltd. announced Thursday that it would sell its 18.8-per-cent stake in Australia’s oldest dairy producer to Saputo, which continues to face one rival bidder.
That would give the Canadian dairy giant control of 45.2 per cent of Warrnambool, according to the most recent available tally, but Saputo’s spokewoman was cautious.
“We’re really happy with the outcome this morning but there’s still days left in the offer and there’s still work to be done,” Sandy Vassiadis said in an interview.
Saputo disclosed on Monday that it had voting control over 26.4 per cent of Warrnambool shares.
Bega launched the bidding war in September with a cash-and-share offer, but let it lapse amid higher all-cash bids from Saputo and Murray Goulburn Co-operative, Australia’s largest dairy business.
Bega, which is Australia’s fifth-largest dairy processor, said it expects to earn a profit before tax and costs of between $61.8-million (Australian, $59.5-million Canadian) and $68.2-million from selling the shares, depending on the ultimate price paid by Saputo.
That’s a huge windfall for a company that earned $15.9-million on $491-million of revenues last year.
Saputo has offered at least $9 per Warrnambool share, $9.20 if it gets more than half of its stock and even more if it gets a larger majority. Its offer expires Jan. 22 but would be extended by 14 days if it obtains majority control.
Warrnambool shares closed Thursday at $9.40 on the Australian Securities Exchange, suggesting investors expect Saputo to get a solid majority of WCB shares.
Murray Goulburn, a co-operative that owns about 17.7 per cent of Warrnambool, is offering $9.50 per WCB share but on the condition it gets approval from Australia’s competition watchdog.
Both Bega and Murray Goulburn have promoted their bids as a way to maintain Australian control over Warrnambool, which Saputo sees as a foundation for growth in the Asia-Pacific region.
Bega said Thursday that it was disappointed that it was unable to merge with WCB or at least have the company remain Australian owned and operated, but decided Saputo’s offer was the best option.
It said selling now was the best financial outcome for its shareholders, saying the risk was too great to wait for the competition tribunal’s decision or until a fourth bidder emerged.
The tribunal is slated to begin five days of hearings Feb. 10 with a decision as early as Feb. 28.
The Australian Competition and Consumer Commission, which is helping the tribunal in its review of Murray Goulburn’s bid, raised concerns that the combination could reduce competition for the acquisition of raw milk in the country.
Irene Nattel of RBC Dominion Securities Inc. said Bega’s decision to sell its shares to Saputo is a “significant step forward” for Saputo’s pursuit of WCB.
“At this point it would appear the question is not whether Saputo will gain control, but rather at what level of ownership and at what price,” she wrote in a report.
Nattel said she expects Japanese conglomerate Kirin, whose subsidiary Lion owns 9.9 per cent of WCB shares, will eventually tender as well.
Keith Howlett of Desjardins Capital Markets said the only thing that could derail Bega’s intention to tender its shares would be if Murray Goulburn increases its conditional bid when the Australian stock market opens.
“The probability of Saputo acquiring effective control of Warrnambool appears to have increased substantially. It appears that tomorrow, Jan. 17, is likely to be the watershed day for its bid,” he wrote, adding that the WCB acquisition is Saputo’s first step in building a business in Australasia.