BEGA Cheese, which lags behind its two rivals in the three-way tussle for Warrnambool Cheese and Butter, could be first out of the blocks this week with a sweetened unconditional offer.
Bega has been spurned with its offer of 1.2 of its own shares and $ 2 in cash for each WCB share but it expects to get a green light for a better offer from the Australian Competition & Consumer Commission before the end of the month.
Proxies are also running heavily in favour of the proposed change in the Bega constitution, to be considered at tomorrow’s annual meeting, that would allow a scrip offer resulting in a Bega shareholder owning more than 10 per cent of the company’s stock.
A source said yesterday that armed with these approvals Bega would be in a position to go unconditional and lift its offer without a minimum-acceptance condition.
The battle for WCB intensified on Friday when the Murray Goulburn co-operative launched a $ 7.50-a-share bid, valuing WCB at $ 420 million.
It trumped the $ 7-a-share, $ 392m pitch from Canadian dairy products giant Saputo, which was recommended by WCB directors in the absence of a higher offer.
Murray Goulburn’s aggressive move is believed to have caused a delay in Saputo chief executive Lino Saputo’s planned trip to Australia this week to meet WCB suppliers, before the company’s annual meeting in Warrnambool on Thursday. Instead he will consider his company’s response to the escalating bidding war.
Speculation continues to swirl, as well, around the intentions of New Zealand’s Fonterra, which said on Friday it was “actively looking” at the Australian dairy market.
While Bega could soon be free to go unconditional, Saputo requires foreign investment approval, which could take some time.
Murray Goulburn has chosen to go down the untested path of seeking public authorisation from the quasi-judicial Australian Competition Tribunal, after the ACCC raised issues with a previous takeover proposal in 2010.
The process is expected to take at least several months.
Murray Goulburn’s legal advisers are Herbert Smith Freehills, where former ACCC chairman Bob Baxt is emeritus partner, competition.
Mr Baxt’s recommendation to give the ACT the power to authorise a merger was taken up by the Dawson review of competition law in 2003.
Murray Goulburn will be the first company to bypass the ACCC and go directly to the ACT for takeover approval.
The move comes at the same time as the Abbott government is preparing for a “root and branch” review of competition law.
Meanwhile, Murray Goulburn chief executive Gary Helou has attracted criticism from the co-op’s rivals in his national interest pitch for an exemption to competition rules.
Mr Helou said on Friday Murray Goulburn was 100 per cent farmer-controlled and the main objective of the co-op was to increase farmer returns.
He said that substantial benefits would flow from the creation of a large domestic producer with the scale and strength to compete internationally and grow local export volumes and revenue.
However, one industry observer said that on Mr Helou’s own admission Murray Goulburn’s gearing would rise to 54 per cent after a successful WCB offer.
While the debt could be slashed by reducing milk prices to farmers, that would be contrary to the argument for national interest.
The alternative was to raise external capital from the current review of Murray Goulburn’s capital structure.
“But if you want equity-style capital, you need to be maximising profits, which goes against the objective of lifting farmer returns,” the source said.
“You can only do it like Fonterra, which went through a step-by-step process to develop a milk-pricing structure.
“But there is no model that perfectly marries the introduction of third-party equity investors and the objective to maximise the milk price.”