UPDATE 2-Canada's Saputo to take over Warrnambool as Australia's dairy industry consolidates

Tue Oct 8, 2013 12:58am EDT

* Canada's Saputo swoops on Warrnambool with $370 mln bid

* Foreign interest in Australian dairy assets on rise

* Saputo would consider more acquisitions

By Maggie Lu Yueyang

SYDNEY, Oct 8 (Reuters) - Canada's Saputo Inc swooped on Warrnambool Cheese and Butter Factory Company Holdings Ltd, potentially kickstarting a wave of foreign purchases in Australia's A$4 billion ($3.8 billion) a year dairy industry.

Canada's largest dairy producer knocked out a significantly lower bid from Warrnambool's majority shareholder, fellow Australian company Bega Cheese Ltd, to win approval from the board for its A$392.7 million ($370.10 million) bid.

Australian dairy farmers have been battered in recent years by a powerful combination of factors, including a supermarket price war that slashed domestic wholesale prices, a strong Australian dollar that crimped exports and a drought that sent cattle feed costs soaring.

While there are bright spots on the horizon - the Australian dollar is falling, demand from the Asian middle class is rising - many local dairy farmers probably won't be able to hang on for the good years in the face of well-funded foreign predators.

"We've got significant enquiries ... from both major local producers as well as offshore investors looking for exposure to Australian agriculture," said Jesse Manuel, a rural and agribusiness specialist at Colliers International with a number of dairy farms on its books. "Those investors are predominantly from Asia including Singapore and China, also New Zealand."

Saputo, which operates in Canada, the United States and Argentina, has long been looking at Australia as a platform to expand its global presence and tap growing demand in Asia's emerging markets.

"This is our dream of ultimately having an Australian platform," Saputo CEO Lino A. Saputo, Jr. said in a media briefing. "We believe Australia has the ideal platform for us getting products into those emerging markets."

Sales of dairy products in China are worth some $45 billion a year and are expected to grow rapidly through 2017 to about $89 billion, according to a Frost & Sullivan report.

Ray White, another agent rural assets agent, recently sent a team to China to engage with potential investors in Beijing.

"The biggest interest in rural is in dairy," Ray White Rural's chairman Paul White said.

White said interest in Australia had been spurred by problems with the supply in China, such as the 2008 tainted milk powder scandal that killed at least six babies and sickened thousands more, and this year's contimation scare including an ingredient from New Zealand's Fonterra.

"Australia is starting to get quite a focus," he said.

Australia's largest dairy business, Van Diemen's Land, said it is in talks with potential investors to raise A$180 million. According to local media reports, possible investors include China Investment Corp (CIC), the country's sovereign wealth fund, and Fonterra.

Fonterra had no immediate comment, while CIC could not be immediately reached for comment.

Analysts consider Van Diemen's Land, which includes several dairy farms in Tasmania and across northwest Australia, a takeover target. The dairy company did not reply to a call seeking comment on Tuesday.

China's biggest beverage company Wahaha told Reuters last year that it was also looking to buy Australian dairy farms to supply milk powder back to China.

Colliers is marketing Raleigh Dairies, which owns two farms on the east coast of the country, and Lactanz Dairies in Western Australia. Another business owned by private New Zealand company Rosmerta is up for sale after going into receivership.

SAPUTO PLANS

Saputo made an off-market offer of A$7.00 per share for Warrnambool in an all-cash deal, which the Warrnambool board had recommended shareholders to accept. That was well above a A$5.75 per share offer from majority owner Bega Cheese Ltd in September.

Saputo currently has a sales office in China, and is selling dairy products into other Asian markets such as Japan, Taiwan and South Korea, out of its Argentina operations.

The CEO said he expected the company's planned growth to come from more acquisitions, potentially in Australia.

"Of course if there are other assets available for sale, we will be part of that process," he said. "Our balance sheet is very very clean, which provides us quite a bit of flexibility for other acquisitions."

Warrnambool CEO David Lord told reporters that the Saputo offer - representing a 57 percent premium to the one-month volume-weighted average price of Warrnambool shares before Bega's offer was announced - was far superior to the Bega bid in terms of both value and conditionality.

Warrnambool shares surged 11.8 percent to A$7.22 by 0200 GMT, touching an all-time high of A$7.29, after the takeover was announced.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.