New South Wales-based dairy company Bega Cheese Limited (Bega) has announced its intention to sell its 18.8 per cent shareholding in Warrnambool Cheese and Butter (WCB) to Canadian dairy company Saputo. The move makes a Saputo takeover of WCB likely.
Bega Cheese, which pulled out of the battle for WCB ownership in December 2013, will realise a substantial profit on the sale of its WCB shares. Depending on Saputo’s relevant interest at the close of its offer, Bega Cheese will receive between $94.7 million and $101 million, delivering a profit before tax and costs of between $61.8 million and $68.2 million.
On 13 January 2014, Saputo said it controlled almost 26.5 per cent of WCB shares — adding Bega’s 18.8 per cent stake gives Saputo at least 45.3 per cent of the takeover target six days out from the closing date of its offer. Australian Food News reported last week that there had been speculation that a move by Bega to sell its WCB shares to Saputo would see food company Lion follow suit.
Bega had “strong preference” for WCB to remain Australian-owned
Bega said it was “disappointed” it could not realise its vision to combine WCB and Bega. The Company said its “strong preference” had been for WCB to remain Australian owned and operated, either through acceptance of Bega’s bid or Murray Goulburn’s bid. However, Bega said the sale of its WCB shares to Saputo was a “better financial outcome for Bega Cheese and its shareholders than a successful takeover at the current bid value”.
Bega said its Board was “conscious of the significant value of the WCB shareholding and its obligation to continue to make sensible investment and capital management decisions”. Accordingly, the risk in continuing to hold its WCB shareholding until the Australian Competition Tribunal’s decision regarding Murray Goulburn’s takeover or until a fourth bidder emerged was “too great”.
“Bega Cheese’s investment in WCB has been a resounding success for both companies, in enabling WCB to pay down debt in a time of need and positioning the company for the future,” said Barry Irvin, Bega Cheese Executive Chairman.
“Bega Cheese’s initial investment in WCB and subsequent takeover offer for the company has created significant value for both companies’ shareholders,” Mr Irvin said. “Bega Cheese’s takeover offer was the catalyst for a process which has highlighted the value of the Australian dairy industry, a rerating of Bega Cheese’s share price and a substantial profit for Bega Cheese,” he said.
Bega’s history of involvement with WCB
Bega said the sale to Saputo ends Bega’s strategic relationship with WCB, which commenced in 2010 when Bega supported WCB’s $37 million capital raising through a placement and underwriting. The proceeds of that raising were used to reduce WCB’s significant debt and were the catalyst for a rerating of WCB. Since then, Bega continued to build its shareholding through WCB’s dividend reinvestment plan and on-market share purchases. Bega’s total investment in WCB was $32.9 million.
“We wish Saputo well with their investment and look forward to working with them for the betterment of the Australian dairy industry,” Mr Irvin said.
“The objective of our takeover offer for WCB was always focused on improving returns for our shareholders and our dairy farmer suppliers. While our bid was not successful, our focus remains the same,” Mr Irvin said. “The significant profit realised by the sale of our WCB holding will add to our capacity to pursue a number of strategic business opportunities which will ensure Bega Cheese’s reputation for being a leader in manufacturing milk pay-rates and delivering stable and growing returns to shareholders,” he said.
