October 30, 2013 / 1:41 AM / in 4 years

Australia's WCB shares fall as Kirin takes king-making stake

SYDNEY (Reuters) - Australia’s Warrnambool Cheese and Butter Factory Company Holdings Ltd WCB.AX shares fell on Wednesday after Japan’s Kirin Holdings Co Ltd (2503.T) bought itself a king-making stake that could block a $430 million takeover bid by Canada’s Saputo Inc (SAP.TO).

Kirin, which made the purchase of the 10 percent stake through its unit Lion, is not expected to make a full bid for WCB, but use the stake to shore up its existing supply agreement with the company.

It may effectively be able to choose a winner in the bidding war for WCB. Saputo’s A$449 million bid has trumped separate approaches from WCB’s two largest shareholders, Bega Cheese Ltd (BGA.AX) and Murray Goulburn Co-operative Co Ltd.

Bega owns about 18 percent of WCB and Murray Goulburn owns 17 percent. If the two banded together with Kirin, they would have just shy of 50 percent, enabling the group to block Saputo’s bid.

The international tussle over WCB highlights the strong demand for Australian dairy assets and their exposure to rapidly growing markets in Asia.

Seeking to bolster its case, Saputo on Wednesday said in a bidder’s statement it planned to invest further in expanding the Australian dairy company’s operations. It may add capacity and introduce new product lines, it said.

The Canadian company also sought to reassure suppliers, who have been hit hard by a dairy price war among Australia’s major supermarkets that has driven farmgate prices lower, saying it intended to pay a “leading competitive milk price”.

Lion, whose Coon and Cracker Barrel cheddar cheese labels are made by WCB, said it had enjoyed a close relationship with WCB over many years and considered the stake buy “a continuation and strengthening of their relationship”.

New Zealand dairy giant Fonterra Co-operative Group (FCGHA.NZ), which had also been seen as a potential bidder, said on Tuesday it had appointed Reunion Capital Partners to advise it on “the current corporate activity in the dairy sector”. But it declined to comment on its possible involvement in a bid for WCB.


    WCB’s shares were down 6.1 percent A$8.26 as of 0030 GMT. The stock has almost doubled in value since September 10, the day before Bega announced the first takeover bid for the company.

    “The stock’s reached a level that’s made it inherently or potentially volatile I think,” said Ric Spooner, market strategist at CMC Markets.

    “Lion’s blocking effort might actually dissuade other people from bidding,” he added. “There’s a bit of nervousness in the cold light of day about that possibility.”

    Bega shares were up 5.3 percent at A$4.39 on the heightened possibility that it may still be in with a chance to win over WCB. Murray Goulburn is not listed.

    Underscoring its strong position as a gateway to Asia, WCB announced late Tuesday it had signed a memorandum of understanding with Toong Yeuan Enterprise Co Ltd over an exclusive sales agreement for its lactoferrin product in China, Hong Kong and Taiwan.

    WCB said the deal would drive its sales of lactoferrin, used in infant formula, fresh dairy and pharmaceuticals, for the next three years.

    “Given the increasing focus on food security and safety in China and the growing demand for high quality, premium dairy products for infants in particular, China is a key market for WCB’s lactoferrin,” WCB Sales Manager John Williams said in a statement.

    Editing by Stephen Coates and Edwina Gibbbs

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