WARRNAMBOOL Cheese and Butter (WCB) chief executive David Lord would retain an “excellent” relationship with Japan’s Lion even if Canada’s Saputo gained control of WCB after Treasurer Joe Hockey gave Saputo’s $450 million takeover offer the green light.Last month Lion stormed into the battle for control of WCB between Saputo, Bega Cheese and Murray Goulburn, when it seized 9.9 per cent of the register in a share raid at $9.25 a share.
WCB is one of Lion’s key suppliers and Mr Lord, whose board has recommended Saputo’s $8 a share cash bid, said a Saputo-controlled WCB “is highly likely to be an organisation that values the Lion relationship in the same way that WCB currently values it”.
He also said it would be logical for Saputo to sit down and talk with Lion about its stake.
“Its not for us to be co-ordinating those conversations but I agree it makes sense for those conversations to be occurring and they may well be taking place already.”
A source close to Saputo said the two companies were not currently in talks. Lion declined to comment.
On Tuesday WCB issued its target’s statement in response to Saputo’s bid. The Montreal-based dairy group was also waved through the Foreign Investment Review Board (FIRB) process without conditions.
Mr Hockey said the future ownership of WCB is ultimately a matter for shareholders, “but this decision provides certainty in relation to Saputo’s bid”.
“Australia is open for business and we welcome foreign investment when it is not contrary to the national interest,” he said. Sooner than expected
While Mr Hockey and former treasurers Wayne Swan and Chris Bowen all dragged their feet on the GrainCorp decision, Saputo’s offer was approved sooner than expected.
In WCB’s target’s statement issued on Tuesday, the company said Saputo expected a decision by November 25, and even flagged the possibility that approval could be delayed until 2014.
Mr Hockey’s comments on the WCB bid came amid a debate within the Coalition about Archer Daniels Midland’s $3 billion bid for GrainCorp .
In response to the Treasurer’s decision, Saputo chief executive Lino Saputo Jnr said he wanted to make WCB a bigger business.
“Saputo has the strategic intent and the financial capacity to invest further in growing the Warrnambool business, expanding production and growing milk intake,” he said. “Saputo’s offer provides the opportunity to grow the industry locally as well as fast track penetration into valuable export markets. Warrnambool will be at the heart of Saputo’s Australian operations, while also creating a platform for growth into the Asia Pacific region.”
Dairy industry analyst Jon Hauser, who addressed a 300-strong meeting of Victorian dairy farmers in Warrnambool on Monday night, said dairy was not like other sectors, arguing farmer ownership of the supply chain is crucial. “I don’t understand how Saputo is going to grow the industry,” Mr Hauser said.
“The industry is unique in this area. The farmer who produces milk has to go to somebody at the end of the day. When you look at the dynamics of the industry, it is really important that you have farmer control in the supply chain.
“Grains can be stored, milk cannot. To me it’s not really about whether they’re multinational companies or Australian private operators, it’s whether the people who own the processing assets have the priority for farmers to be profitable.” Farmers divided
Between 30 to 40 per cent of the WCB register is held by Warrnambool region locals in Victoria’s south-west, and Mr Hauser said farmers were divided in their views.
Australia’s biggest dairy exporter Murray Goulburn has offered $7.50 a share in cash while Bega has offered $2 cash plus 1.2 of each of its shares (worth $7.23 on Tuesday). Murray Goulburn owns 17.7 per cent of WCB while Bega has an 18pc stake.
“A third of the people are devout followers of the co-op, a third are devout followers of the private industry ownership structure and third of the people are swinging voters in the middle,” he said.
Bega cleared the Australian Competition and Consumer Commission last week, which means both Bega and Saputo have satisfied their external regulatory conditions and are free to make their offers unconditional.
Murray Goulburn is set to lodge its application to the Australian Competition Tribunal in the coming weeks. After a discouraging statement of issues from the ACCC in 2010 when Murray Goulburn offered $180 million for WCB, the Victorian farmer co-operative is bypassing the ACCC and arguing its case on a net public benefits basis before the Tribunal.
WCB chairman Terry Richardson said the FIRB approval significantly progresses Saputo’s offer, “which is significantly superior to other current proposals.”
WCB shares rose 1pc to $8.54 on Tuesday.
It also said Saputo’s offer for WCB was above the range an independent expert had prepared in relation to the Bega offer. The independent expert, issued on October 12, valued WCB shares on a 100pc controlling interest basis at between $6.96 and $7.49 a share.
WCB said Saputo’s offer would provide more certainty regarding the future of WCB’s operations and continuing employment.
Saputo has promised to retain the WCB name and corporate identity, continue to operate facilities at Allansford and Mil Lel and look to increase manufacturing capacity and look for opportunities in the export market to further develop its brands. WCB will continue to be managed by the current senior management as a new division within Saputo.
WCB said it believed the majority of suppliers were in favour of Saputo’s offer as it would be a strong competitor for milk supply in the region.
Source: Queensland Country Life
