WCB bid a churning issue

A successful Saputo takeover might therefore not only benefit shareholders, but farmers too

AS THE battle for Australia’s oldest surviving dairy company continues into the new year, it seems those at the helm of the 125-year-old Warrnambool Cheese and

Butter (WCB) are restless.

Signs this week are overwhelmingly in Canadian dairy giant Saputo’s favour, with WCB again recommending shareholders reject Murray Goulburn’s (MG) competing bid.

The Australian Competition and Consumer Commission (ACCC), assisting the Australian Competition Tribunal inquiry into the bid, has also rejected MG’s claim a takeover would not significantly lessen competition.

It said: “There is potential for the proposed (MG) acquisition to have the effect of lessening competition in the acquisition of raw milk.”

MG argues it would bring higher farmgate milk prices through an increase in milk pool efficiencies and increased international competitiveness due to its potential size.

However, MG’s strong interests in the domestic fresh milk market, this year taking on a 200 million litre contract with Coles, plus the need to source extra milk for any potential exports if it won its WCB bid, would likely be conflicting - particularly with the expectation a takeover would place financial strain on the company.

Meanwhile, Saputo’s bid appears to offer more certainty for shareholders compared to MG’s $530m offer of $9.50 a share, which is conditional on it getting 50.1 per cent of WCB, as well as the green light from the tribunal.

Saputo’s bid includes an unconditional $9 a share in cash plus 20c a share each time Saputo passes acceptance hurdles of 50.1pc, 75pc and 90pc.

A successful Saputo bid would maintain the number of players in the Australian market, and if its plans to innovate translated to expanded value adding and export capacity, it could bring much needed competition to Australia’s dairy sector.

Combining MG and WCB might put it in the same league as Lion and Coca-Cola Amatil in terms of size, but this doesn’t mean it will make it any easier for farmers to extract a better price.

Saputo already has its foot in the door in China, Japan, Taiwan and Korea.

While some commentary suggests a combined MG/WCB take advantage of these Asian markets due to its potential size, the anticipated growth in dairy consumption in these sectors would also create plenty of room for a company with its foot already in the door, ie. Saputo, to grow.

A successful Saputo takeover might therefore not only benefit shareholders, but farmers too.

TheLand
Andrew Norris

Andrew Norris

is the editor of The Land
A matter of opinionA selection of editorials from around the Fairfax Agricultural Media group covering the issues of the week.

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