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One of the Australia’s biggest milk processors, Warrnambool is in the midst of a takeover battle that pits Saputo against two Australian contenders.PETER POWER/The Globe and Mail

Lino Saputo Jr. is coming to appreciate what it is like to be a politician on the campaign trail.

On two week-long trips to Australia in the past month, the CEO and vice-chairman of Saputo Inc. has travelled hundreds of kilometres in the state of Victoria to meet with dairy farmers who own shares of Warrnambool Cheese and Butter Factory Co.

One of the country's biggest milk processors, Warrnambool is in the midst of a takeover battle that pits Saputo against two Australian contenders.

Since Saputo went public in 1997, the Montreal-based company has completed 22 deals totalling $4.2-billion. But never before has it been engaged in a public bidding war. Its opponents, local producers, have played the nationalist card, depicting Saputo as a foreign producer that would turn the Australian dairy market upside down.

"Meeting with the dairy farmers is like sitting down with the father of the bride and explaining why we want to marry her," Mr. Saputo said in an interview at the company's headquarters in the Montreal borough of St-Léonard. "Our intentions are noble and we are not out to destroy the dairy industry as they know it," he said.

But Saputo's rivals don't quite see it that way.

Bega Cheese Ltd., Murray Goulburn Co-operative, and Lion, a subsidiary of Japanese brewery Kirin Holdings Co., have accumulated close to 45 per cent of Warrnambool's shares as they attempt to block Saputo's entry into Australia.

Saputo contends its offer is superior because its acquisition would not trigger a competitive review. But leaving nothing to chance, it raised its all-cash offer to $9 (Australian) per share from $8 on Friday to match Murray Goulburn's bid. (Bega said it would not raise its cash and stock offer whose implied value is currently inferior to $9.)

The proposed $499-million transaction, or roughly $487-million (Canadian), which has the backing of Warrnambool's board, has been 12 years in the making. Mr. Saputo met Warrnambool executives during his first trip to Australia in 2001.

"We saw they would be a great platform for us, but we never wanted to approach them on a hostile basis," Mr. Saputo said. "… Had we burned that bridge back then, we would not be in the situation we are in today, where management sees us favourably."

Getting a foot in Australia is key for Mr. Saputo. When the 47-year-old executive succeeded his father a decade ago, he set Saputo on an international course, believing that the country's biggest dairy processor had outgrown Canada. Australia, with Argentina and New Zealand, is one of the few countries that has the infrastructure to produce dairy products and ingredients on a large scale and has access to milk at low international prices. Raw milk represents 85 per cent of Saputo's operating costs. Besides serving the domestic market, Saputo could use its Australian operations to export to countries that don't produce enough dairy products to satisfy their needs: China, Taiwan, Japan, Indonesia, Russia, Brazil and the like.

The international expansion has been trying at times. While Saputo has become the third largest player in the fragmented Argentine dairy market, it pulled out of Europe in February because it couldn't get access to enough milk.

Saputo bolstered its presence in the United States with a $1.45-billion (U.S.) deal for Morningstar Foods in 2012, the biggest acquisition in its 59-year history. Saputo, which chiefly produces mozzarella, is now the third largest dairy processor in North America, behind Nestlé and Dean Foods, but ahead of Kraft Foods.

The market is challenging, however. In North America, dairy producers face high milk costs and, to gain market share, some rivals are not passing those increases along to clients. "Some competitors are acting less responsibly than in the past. This puts us in a difficult position," Mr. Saputo said.

Those challenges do not deter Saputo from eyeing other acquisitions, with the up to $3-billion in debt the company could still take on. While Saputo pushes on with its uphill battle for Warrnambool, the company is considering deals in the United States and Brazil, which Mr. Saputo visited in September. "The industry is very fragmented, and we could be a consolidator," he said.

As Saputo is going to the world, the world is also coming to Saputo. As a concession in its free trade deal with Europe, Ottawa agreed to let twice as much cheese enter the country tariff free – an extra 17,700 tonnes.

"This is going to displace local producers," said Mr. Saputo, whose company controls more than a third of the Canadian market for cheese and fluid milk. But he added his company will have time to adapt. "The real casualties are going to be the artisan manufacturers that perhaps don't have the strength to compete."

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