The Board of the Victorian-based ASX-listed dairy company Warrnambool Cheese and Butter (WCB) is still advising WCB shareholders to reject the revised offer by New South Wales-based dairy company Bega Cheese (Bega) in favour of the total cash offer from Canadian dairy company Saputo.

On 14 November 2013, Bega had announced its revised offer for WCB would be 1.5 Bega shares and $2 cash per WCB share (formerly 1.2 Bega shares and $2 cash per WCB share). Bega also announced that its revised offer was unconditional, and that it would be the final offer from Bega for WCB.

While noting that neither Murray Goulburn nor Saputo had declared their respective offers final, WCB’s Board has this week said its Directors “continue to believe that the terms of the Final Bega Offer are materially inadequate and do not reflect fair value” for WCB shares.

The WCB Board noted that Bega had been contacting WCB shareholders seeking to persuade them to accept Bega’s final offer. But the WCB Board said it “strongly encouraged” WCB shareholders to “ignore communications” from Bega and reject its offer by “doing nothing in relation to any documents received from Bega”.

WCB said its Directors and Senior Executives intend to reject the final Bega offer in favour of the revised offer from Saputo.

Reasons given by WCB Board for rejecting Bega offer

WCB said its Board still considered the revised Saputo offer of $9 cash per WCB share announced on 15 November 2013 to be superior to Bega’s final offer.

WCB said the implied value of Bega’s final offer is $9.01 per WCB share which was based on the $4.67 closing price of Bega shares as at 19 November 2013, but the WCB Board did not consider the current market price of Bega shares “an appropriate reference point for measuring the implied value of the final Bega offer”.

WCB said its Directors “do not believe that the current price of Bega shares is reflective of Bega’s current underlying or intrinsic value”, in part because Bega shares have been pushed up by the recent acquisition of Bega shares by New Zealand-based dairy giant Fonterra. WCB also said the increase in the Bega share price was “also partly attributable to the substantial increase in the market price of WCB shares”.

Payment timing for Saputo offer

WCB said that existing WCB shareholders who accept Saputo’s revised offer will receive $9 cash per share within five business days of Saputo’s offer being declared unconditional. It is expected that this will be declared on 28 November 2013.

“Therefore existing shareholders who accept on or before 28 November should receive their $9 cash per share on or about 5 December 2013,” said David Lord, Managing Director of WCB.

WCB said if fully franked special dividends are paid, then some shareholders will receive an additional benefit of up to $0.56 per share in franking credits.

Murray Goulburn plans to raise shareholder funds to make new offer

Meanwhile, Murray Goulburn is reportedly planning to list part of  Murray Goulburn (which is currently a farmer-owned co-operative) on the Australian Securities Exchange (ASX) to raise additional capital to fund a revised offer for WCB. Murray Goulburn is expected to offer a higher price in the vicinity of $10 per WCB share. Murray Goulburn’s current offer for WCB is $7.50 per WCB share.

Inter-generational perspectives

An unidentified industry commentator has suggested that WCB’s existing farmer shareholders might have two different generational perspectives of the takeover offers, depending on their age group.

Older farmers may prefer cash and therefore be more likely to favour Saputo’s total cash offer, but younger farmers with a longer-term commitment to dairying might give preference to Bega, because of its mixture of cash and shares in Bega as a successful and expanding ASX-listed Australian-based company that will compete with Murray Goulburn.

The fact that Murray Goulburn is a shareholder in Bega is counter-balanced by the recent acquisition of Bega shares by Fonterra. The fact that Bega’s shareholding register includes both Fonterra and Murray Goulburn could also be indicative of a future increased value proposition for Bega shares. This view runs contrary to the current opinion expressed by WCB Board members who claim that Bega’s shares have been over-valued by the recent high price paid by Fonterra for its Bega stake.

Although the Murray Goulburn offer is a cash one, it is an offer that might be tempered by news of Murray Goulburn’s need to raise additional capital. Dairy farmers might be projecting that this could mean lower cash returns for current WCB farmers if they were selling milk only to Murray Goulburn, resulting in more downward price pressure on milk suppliers.

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