The Australian Government’s Takeovers Panel has issued interim orders to prevent Canadian dairy company Saputo from processing any acceptances received under its takeover offer for Warrnambool Cheese and Butter (WCB).

Meanwhile, Australian dairy co-operative Murray Goulburn has announced an increased all cash takeover offer for Warrnambool Cheese and Butter (WCB) of $9.50 cash per share.

Saputo bid blocked

The Takeovers Panel said the interim orders have effect until the earlier of further order of the Panel, determination of the proceedings or two months from the date of the interim orders.

Murray Goulburn made an application to the Panel on 26 November 2013.

The Takeovers Panel interim orders are:

1. Saputo must not take any further steps to process any acceptances received under its bid for WCB

2. Saputo must, as soon as practicable, provide a statement in a form approved by the Takeovers Panel to WCB explaining to WCB shareholders the effect of the interim order

3. WCB must immediately release to the market the statement received from Saputo

Murray Goulburn increases bid

Murray Goulburn said its revised off-market offer “represents compelling value for WCB shareholders, delivers them a demonstrably superior value outcome relative to all other competing proposals, and is simple and straightforward”.

The Co-operative said it had noted that Canadian dairy company Saputo had removed the dividend component of its offer in the most recent revision, reported by Australian Food News on 25 November 2013, and included additional ‘contingent’ consideration. Murray Goulburn also noted that the WCB Board had stated it would not declare a dividend during the Saputo offer period.

Murray Goulburn said it still wished to “explore the potential” of WCB paying special dividends under its revised offer in order to deliver franking credit benefits to some shareholders. The Co-operative requested that the WCB Board engage to enable this value to be delivered to some shareholders.

WCB sale has ‘significant ramifications’ for Australian dairy industry

Murray Goulburn said its revised offer was a “further endorsement” of its commitment to acquiring WCB, and would deliver an Australian-owned and operated company “with the scale, capacity, strength and momentum to capture global growth opportunities”.

The Co-operative said it urged WCB shareholders to “seriously consider the benefits” of its revised offer, and that the sale of WCB was “an important decision that will have significant ramifications for the future of the Australian dairy industry as a whole”.

In comparison to the other offers for WCB, Murray Goulburn said its revised offer:

• was the only offer that would “ensure that the benefits of a combination will be delivered back to supplier/shareholders via increased farm gate returns”

• was the only offer that would “result in a globally relevant and 100 per cent farmer-controlled dairy co-operative”

• was the only offer that “allows existing WCB suppliers who are also shareholders to become supplier/shareholders of a new, enlarged and efficient co-operative”

• allowed farmers and their communities to “directly share in the benefits captured from future global growth opportunities”

Murray Goulburn said WCB suppliers who were also shareholders would be able to participate in the review of future changes to Murray Goulburn’s capital structure, as recently announced at the Co-operatives Annual General Meeting.

Murray Goulburn said it expects that the WCB Board will engage expeditiously with Murray Goulburn to deliver a positive recommendation for the revised offer, which is $2.01 above the top end of the Independent Expert’s assessed value range for WCB shares.

Highlights of MG’s Revised Offer for WCB shareholders

• $9.50 cash per WCB share, valuing the company at $533 million, which represents:

• 111 per cent premium over the closing price of $4.51 per WCB share on ASX on 11 September 2013, the last trading day prior to the announcement of the offer by Bega Cheese Limited (Bega);

• 6 per cent premium to Saputo’s revised $9.00 cash per share offer announced to ASX on 25 November 2013 (before any increase in offer consideration if Saputo achieves a relevant interest in WCB shares of greater than 50%); and

• 6 per cent premium to the implied value of Bega’s offer, based on the closing price of Bega shares on ASX on 27 November 2013.

• Fully funded with Murray Goulburn having secured debt facilities from its existing financiers National Australia Bank Limited (NAB), Australia and New Zealand Banking Group Limited (ANZ) and Westpac Banking Corporation (WBC).

• Murray Goulburn is seeking to engage with the WCB Board in order to explore the possibility of paying special dividends to WCB shareholders as part of the Revised Offer (in a similar manner to Saputo’s original proposal), in order to deliver franking credit benefits to some shareholders.

“Murray Goulburn remains firmly committed to acquiring WCB,” said Gary Helou, Murray Goulburn Managing Director. “A combined Murray Goulburn and WCB will create one of hte largest Australian owned food and beverage businesses and a globally competitive dairy foods company 100 per cent controlled by dairy farmers,” he said.

“Murray Goulburn is itself entering an exciting phase of growth and has identified a series of strategic capital investments that will target a $1 per kilogram of milk solids lift in underlying farm gate milk prices over a five year period from FY12 to FY17,” Mr Helou said. “”Murray Goulburn will deliver these benefits to supplier shareholders, including those WCB suppliers who join the co-operative regardless of the outcome of the WCB bids,” he said.

Offer conditions

Murray Goulburn’s revised offer remains conditional on all conditions as set out in Murray Goulburn’s announcement on 13 November 2013, including:

• no objection by the ACCC or granting of authorisation by the Australian Competition Tribunal in relation to the proposed transaction;

• MG having a relevant interest in greater than 50 per cent of WCB by close of the Revised Offer;

• no material new acquisitions, disposals or other commitments by WCB beyond certain financial thresholds;

• and no material adverse change or prescribed occurrence events occurring with respect to WCB.

Funding

Murray Goulburn said it has committed financing facilities available from its existing lenders to fund the Revised Offer. As previously announced, Murray Goulburn has secured $350 million of new facilities from NAB, ANZ and WBC in order to finance the transaction and assume WCB’s facilities to the extent required.

Murray Goulburn said its Board and management believe that Murray Goulburn’s level of leverage, post a successful transaction, “is appropriate for a farmer-controlled co-operative structure in its current phase of significant growth and investment”. It said the support of the financiers for these facilities “reinforces Murray Goulburn’s view that the rationale and financial metrics implied by the offer are attractive”.

Timing

Murray Goulburn expects to dispatch its Bidder’s Statement containing detailed information relevant to the Revised Offer to all WCB shareholders by early December 2013. MG also expects to lodge its application to the Australian Competition Tribunal before the end of November.

Advisers

Lazard is acting as financial adviser to Murray Goulburn and Herbert Smith Freehills is acting as legal adviser.