| WARRNAMBOOL, Australia
WARRNAMBOOL, Australia Dairy farmers in the tiny Australian town of Warrnambool, battered in recent years by drought, a stubbornly high currency and a bruising supermarket war over milk prices, are on the cusp of a much welcome windfall.
Along with milk truck drivers and other suppliers, the farmers in this sleepy coastal town with more cows than people have emerged as the kingmakers in an international battle for Australia's oldest dairy producer.
And they are not simply looking at the topline offer.
"At the end of the day, farmers just want to be paid well," said Simone Renyard, whose husband's family has been both suppliers and shareholders of Warrnambool Cheese and Butter Factory Co WCB.AX for generations. "If we get well-paid, most farmers aren't going to care which way it goes."
Renyard's dairy farm is one of many in the lush green fields near Warrnambool town, which marks the western end of the Great Ocean Road.
No one is quite sure what the name Warrnambool means. Some say the Aboriginal word means "two swamps", some say "ample water".
The quiet backroads of the town, which carry little traffic beyond giant milk tankers, are a world away from the office boardrooms usually at the center of takeover wars.
Locals collectively own 30 to 40 percent of Warrnambool, the 125-year-old company at the center of a three-way bidding war led by Canada's Saputo Inc (SAP.TO). Their combined stake makes the farmers the largest shareholder in the firm.
Warrnambool's board is backing a A$505 million ($472.81 million) unconditional cash bid from Saputo, rejecting a matching A$9 per share cash offer from Murray Goulburn Co-operative Ltd that is dependent on regulatory approval, as well as a cash and scrip offer from Bega Cheese Ltd (BGA.AX) currently worth A$9.22 per share.
The trio are clamoring to lock in a key exporter of both traditional dairy and high-tech milk extracts to benefit from surging demand from Asia.
Their frenzied bidding has doubled Warrnambool's market value to A$520 million in just three months, and is now shifting the fight from the boardroom to the milking room.
"It's up to the farmers now to decide what they want," said Mark Topy, an analyst at Canaccord Genuity in Melbourne. "And I think they will be slow and deliberate in making a decision."
Those whose families have worked the rolling green hills for generations are far more concerned about the protection of jobs and milk payments than bumper dividends and share prices.
Farmers whom Reuters spoke to on Monday were divided over whether or not to accept the bid from Saputo, a foreign company. Those not in favor of the bid are looking at a local champion capable of competing internationally and who would safeguard local interests first.
"It's a difficult decision for suppliers," said Geraldine Conheady, who owns four dairy farms with her husband, Edward, supplying around 56,000 liters a day to Warrnambool in peak season.
Life as a dairy farmer is a tough business in Australia, where a hospitable climate is periodically marred by drought, bushfires and floods. Dairy farm numbers have shrunk to 6,700 from almost 12,000 just over a decade ago.
The first dairy cows arrived in New South Wales in 1788 with the First Fleet from Britain that settled the country. But it wasn't until the late 1800s that the dairy industry began to properly take off as farmers established cooperatives to transport, process and market milk.
Warrnambool was one of the first of these, founded in 1888 by a group of farmers and merchants in its namesake town in Victoria state.
The region is now home to the majority of Australia's dairy farms. It is responsible for almost two-thirds of the country's total dairy production, worth around A$4 billion at the farm gate and A$12 billion value-added through the food industry.
Suppliers leaning in favor of Murray Goulburn's bid are focused on keeping the business in Australian hands or in a co-operative.
"The industry in Australian has been shrinking, shrinking, shrinking. We feel if it stayed Australian, you do have a degree of control over your own destiny," said Edward Conheady, a third-generation dairy farmer with a small stake in Warrnambool.
"We're shooting in the dark, but we're tending to go for Murray Goulburn," he said. "It's our last opportunity to keep something Australian."
Those leaning in favor of the Saputo bid want to ensure they have a choice of manufacturers to whom they can supply their milk.
Warrnambool Chief Executive David Lord stressed Saputo's pledge to put Warrnambool at the heart of its Australian operations and retain jobs in the region.
Bega's cash and scrip offer is reliant on what Lord terms an inflated share price, while Murray Goulburn faces a lengthy process to receive regulatory approval for its bid.
"Cash is king, the Saputo offer provides the ultimate security for shareholders," Lord told Reuters. "It also preserves the jobs of existing employees."
Farmers are also concerned about the debt Murray Goulburn is going to have to take on to seal a deal. Gearing levels at Murray Goulburn will rise 3 percentage points to 56.7 percent if the bid is successful.
"To service that they may have cut prices to milk suppliers," said Nick Renyard, Simone's husband, whose family has been in dairy farming for more than 40 years with more than 1,000 acres now being farmed.
All the contenders are eyeing the burgeoning Chinese dairy import market, which has expanded to around $4 billion currently from $400 million 10 years ago.
Warrnambool is attractive for both its basic dairy produce - it churns out around 800 million liters of milk a year via its shareholder farms - and infrastructure that includes a high-tech plant producing value-added milk extracts.
With the prize so great, Murray Goulburn hasn't ruled out raising its bid, although analysts warn it will need to take its offer beyond A$10 per share to have any hope of winning approval from the Warrnambool board.
Lord declined to comment on potential valuations or offers, but said the board was committed to reviewing any and all offers or improved bids.
Canaccord Genuity's Topy said the risk now is that the battle drags on with none of the major players making any ground, leaving Warrnambool with a split share register. Bega and Murray Goulburn hold around 18 percent each currently, with Saputo owning less 5 percent.
Bega and Murray Goulburn executives are holding meetings with shareholders in Warrnambool on Tuesday, following in the footsteps of Saputo's Lino Saputo Jnr, hoping to sway local investors.
Regardless of the differences among farmers, the underlying desire is the same.
"It's about protecting our viability into the future," said Edward Conheady.
($1 = 1.0681 Australian dollars)
(Editing by Ryan Woo)