* Bega books cash windfall on sale of Warrnambool stake
* Canada's Saputo primed to take control of Warrnambool
* Bega considering product development, acquisitions
By Jane Wardell
SYDNEY, Jan 16 Bega Cheese Ltd will
walk off with a pile of cash and a kingmaker role in Australia's
"dairy wars" after virtually handing control of the country's
oldest milk and cheese producer to a Canadian suitor.
Bega agreed on Thursday to sell its 18.8 percent stake in
takeover target Warrnambool Cheese and Butter Factory Holdings
Co to Saputo Inc. That effectively ends a
takeover battle Bega itself started last year but abandoned as
With the dust about to settle on one Australia's most
intense bidding wars in years, Bega now has a A$70 million
($62.5 million) windfall, wiping out debt and freeing up funds
for new products or acquisitions.
Its position of strength, along with company statutes that
would deter bidders, also means it hopes to stay independent
even if international suitors call in what has become one of
Asia's hottest food and drink sectors.
The intensity of the struggle for Warrnambool - nine bids or
counter-bids since last September - reflects huge interest in
Australia's agriculture assets amid surging demand from
increasingly affluent southeast Asia for both high-tech milk
extracts and traditional dairy products.
"Some might debate who actually got first prize," Bega
Chairman Barry Irvin told Reuters in a telephone interview.
Irvin was speaking after Bega said it would sell its shares in
what has become the world's most expensive dairy company on a
price-to-earnings basis, according to Thomson Reuters data.
"Turning a A$30 million investment into A$100 million of
value is obviously not without its comforts," Irvin said,
referring to the surge in Warrnambool's shares since Bega's
first offer. With sales exceeding A$1 billion last year, Bega is
the largest cheese-cutting and packaging company in Australasia.
Warrnambool stock rose amid counterbids from both Saputo
and fellow Australian dairy producer Murray Goulburn
Co-operative Co Ltd. With 45.2 percent of Warrnambool already in
its hands, Saputo's anticipated winning offer is likely to
eventually value Warrnambool at a sizeable A$549 million.
Irvin said Bega's decision to pull out of the race in late
December as bid prices spiked was taken with a cool head - as
was the decision to hold its stake until Saputo sweetened its
"We remained disciplined and didn't allow ourselves to be
distracted by the potential value that was being created by the
bidding process," he said. The bidding has hoisted Warrnambool's
stock to the point where it now trades at 38.2 times its 12
months trailing earnings, according to Thomson Reuters data.
The shares closed at A$9.40 on Thursday, up 1.3 percent and
close to the maximum Saputo has said it will pay if it receives
at least 90 percent acceptance rate for its offer.
"The price that was paid, on an earnings basis, looks
ridiculous," said Chris Kimber, managing director at Kimber
Mark Topy, a senior industrial analyst at Canaccord Genuity
Wealth Management, said Bega had played the battle well. "The
price Saputo paid for Warrnambool is very high and we wait to
see how they are going to justify that price," Topy said.
With plentiful milk resources and the technology to make
advanced health-promoting products from them, Australia's dairy
businesses remain in demand for companies keen to serve Asia's
Earlier this week, China's Bright Food (Group) Co Ltd said
it had agreed to buy Australian cheese and yoghurt producer
Mundella Foods. The small, privately-held company specialises in
probiotic yoghurt drinks and began exporting to Asia in 2010.
Bega is also branching out into high-tech areas. Along with
cheddar and mozzarella cheese, Bega makes whey protein
concentrate - and the same milk extracts called neutraceuticals
that made Warrnambool a hot target. It exports to 40 countries.
"It's in that high-value area where we are seeing demand and
where we are seeing opportunities," Irvin said, adding that
business development and infrastructure rationalisation were
also potential areas of investment focus.
Named for the small rural town in which it is based in
Victoria state - its company slogan is "Real Town. Real Cheese."
- Bega itself could be viewed as a takeover target, Irvin
acknowledged. Its stock has surged 47 percent since
mid-September, closing on Thursday at A$4.62.
Some analysts have suggested that Saputo could move to
consolidate its position in Australia, or that New Zealand giant
Fonterra may step in. But Bega is dealing from a
position of strength: Irvin said the company is not for sale,
stressing its corporate statutes contain hurdles to a hostile
Bega statutes currently limit any single shareholder to a
maximum 10 percent stake. If a takeover is offered at a premium
to Bega's share price, shareholders can vote to change the
statutes - but the vote needs 75 percent approval to pass.
Saputo declined to comment on Bega's share sale. Murray
Goulburn, which with a 17.7 percent stake has little hope of
reaching the 50.1 percent needed to make its offer
unconditional, said it would "assess the ramifications" on both
its bid and its shareholding.
Japanese beverage giant Kirin Holdings Co Ltd is
expected to retain its 10 percent stake to protect its
distribution agreement with Warrnambool - particularly as
Australia's "dairy wars" may not be over.