The Board of Victorian-based Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) has unanimously recommended WCB shareholders reject a take-over offer from Bega Cheese Limited (Bega).

On 12 September 2013, Bega announced that it intended to make an unsolicited takeover offer for the outstanding shares in WCB. Bega currently owns 18 per cent of WCB shares.

The Board of WCB, together with its advisers, has undertaken a review of the Bega offer and has decided to recommend WCB shareholders reject the offer for the following reasons:

• Bega’s offer is “inadequate and does not reflect fair value for WCB shares”
• Bega’s offer “does not fully reflect the strategic value of WCB to Bega Cheese”

WCB said it believed the potential synergies from a combination of Bega and WCB are “materially higher than set out in Bega’s Bidder Statement”.  It said Bega’s offer was “timed to exploit recent gains in Bega’s share price” and was “highly opportunistic and fails to reflect the value of a number of recent business improvement initiatives undertaken by WCB”.

According to WCB’s directors, Bega’s offer consideration is “uncertain and there are risks in owning Bega shares”. Additionally, the WCB Board said the offer was “highly conditional and uncertain, and may result in a potential tax liability for WCB shareholders”.

WCB said it has “strong prospects” as a globally-focused manufacturer of value-added dairy products with a “strong platform for future growth”.

WCB forecasting report shows viability as ‘stand-alone’ company

WCB said it was completing its budgeting process in line with the usual proceedings at this time of year, including preparation of detailed earnings forecast for the current financial year. In response to the Bega offer, and to ensure that all shareholders and the wider market are fully informed about WCB’s prospects, WCB has engaged business advisors PwC Australia to complete an Investigating Accountant’s Report into the 2014 financial year earnings forecast. The report will be included in WCB’s Target Statement.

The Company said its shareholders could expect to receive a Target Statement with WCB’s formal response to the Bega offer in mid-October 2013.

The report will include the WCB Board’s formal recommendation in relation to the Bega offer, as well as more detail on its assessment of the offer, including the Investigating Accountant’s Report in relation to WCB’s forecast for the 2014 financial year. WCB said the Target Statement will assist WCB shareholders to “properly assist the future profitability and value of WCB as a stand-alone company”.

“The WCB Board remains committed to maximising value for shareholders and improving the livelihood of its suppliers, and will focus on continuing to implement its strategic plan,” the WCB Board said in a statement. “As Australia’s oldest dairy processor, thanks to the support of its shareholders, suppliers, staff, customers and the community, WCB has grown to become a leading innovator of dairy products and strongly positioned competitor in the domestic and international dairy markets,” the Board said.

WCB said it will continue to keep shareholders, suppliers and other stakeholders fully updated throughout the process. The Company said its shareholders were likely to receive further documentation from Bega soon, but that they do not need to do anything to reject Bega’s offer.

WCB is being assisted by Minter Ellison as legal adviser and CIMB Corporate Finance (Australia) Limited as financial advisor in response to the offer from Bega.

Share