Saputo wins bidding war for Aussie dairy

Saputo has come out on top in a bidding war for Australia's oldest dairy processor by gaining majority control of Warrnambool Cheese & Butter, the company confirmed Tuesday.

The Montreal-based company wrote in a filing with the Australian Stock Exchange that it has secured a stake of 52.7 per cent in the dairy ahead of the Wednesday deadline for its offer.

Saputo gained control when Wilson Asset Management, which owns 1.15 per cent of Warrnambool, and other shareholders, agreed to sell their stakes, the Business Spectator website and the Australian Broadcasting Corp reported.

Base to expand Pacific sales

The Canadian cheese giant has been eyeing Australia for a decade as it sought ways to extend its reach into the Asia-Pacific area and capitalize on growing global demand for dairy solids. The demand for milk powder used in baby formula, for example, has grown by 25 per cent annually since 2010.

The deadline for its offer is now extended by 14 days to give more Warrnambool shareholders time to accept Saputo's offer, which could raise the price to as high as $9.60 Australian from $9.20, if enough shareholders tender their shares.

Saputo's offer of $9 Australian per Warrnambool share rose to $9.20 after securing more than half of its stock. The bid rises to $9.40 per share if it gets 75 per cent of Warrnambool and $9.60 if it gets 90 per cent.

$486-$537M sale price

Saputo will pay between $503.7 million ($486.3 million Cdn) and $537.3 million ($518.8 million Cdn), depending on the result.

Warrnambool's shares closed Tuesday at $9.31 on the Australian Securities Exchange, suggesting investors expect Saputo to get a solid majority of WCB shares.

Montreal-based Saputo has been creeping towards the finish line after one-time rival Bega Cheese, Australia's fifth-largest dairy processor, last week agreed to tender its 18.8 per cent stake in the dairy.

The last official count put Saputo at 47.85 per cent.

Analyst Irene Nattel of RBC Capital Markets said one of the remaining questions is how large Saputo's stake will be, and what price it will have to pay to enter the Australian dairy market.

"The wild card in the process remains Murray Goulburn," she wrote in a report.

Murray Goulburn, the co-operative that runs Australia's largest dairy processor, controls 17.7 per cent of Warrnambool and has bid $9.50 US contingent on winning competition tribunal support.

Uncertainty over competition tribunal

"Given the uncertainty of approval by the Australian Competition Tribunal, we would expect Murray Goulburn to tender to Saputo while simultaneously expressing its disappointment and pointing to the windfall profit it will realize on its stake," Nattel added.

"But this entire process has been full of unexpected twists, so at this point nothing is certain."

The competition tribunal said Monday that it would proceed with its inquiry into Murray Goulburn's bid, set to begin Feb. 10, even if Saputo secured more than half of Warrnambool.

Kirin Holdings also owns about 10 per cent of Warrnambool through its Lion unit in Australia.

Warrnambool is seen as a potential toe hold in the Asia-Pacific region for Canada's largest cheese and dairy company, which also has a major presence in the United States and operations in South America.

Australia is the world's third-largest exporter of milk products after the European Union and New Zealand, with about 10 per cent of the global market share.

On the Toronto Stock Exchange, Saputo's shares closed down one cent to C$52.54 in Tuesday trading.