THE dramatic takeover battle for Warrnambool Cheese & Butter could take another turn in its dying moments, with Japanese-owned Lion not expected to sell its 10 per cent WCB stake into Canadian giant Saputo's offer.
Saputo has already won the protracted bidding war, with rivals Murray Goulburn and Bega Cheese caving and accepting Saputo's offer this month.
Saputo secured 50 per cent of WCB – and therefore control – last week.
But if Lion fails to accept into Saputo's $500 million-plus offer, it will prevent the Montreal-based company from getting to the 90 per cent hurdle, at which point a compulsory acquisition takes place.
It will also prevent other WCB shareholders from receiving an additional 20¢ a share, for a total of $9.60 a share in cash, that Saputo will pay if it gets to the 90 per cent mark.
On Wednesday, Saputo snapped up Murray Goulburn's 17.7 per cent WCB shareholding, taking its stake to 77 per cent and triggering a 20¢ rise in its offer to $9.40 a share (worth $526 million). At the 50 per cent mark, shareholders were entitled to $9.20 a share.
The increase in Saputo's offer price also means its offer, which is last and final, will be extended until 7pm on February 12. Prior to the extension, the offer was due to close on February 4.
If the Greenhill-advised Lion refuses to sell its stock, WCB will remain listed on the ASX and Saputo will have to keep paying listing fees and dealing with the legal requirements associated with being an Australian public company.
Lion seized its 10 per cent WCB stake in a share raid in October at prices of up to $9.25 a share. The company has kept its cards close to its chest, saying only that it wants to strengthen its relationship with WCB and protect cheese supply contracts it has with the company.
The problem is Saputo has been unenthusiastic regarding talks with Lion about its supply arrangements.'No intention' to accept offer
Part of the conundrum for any discussion is the collateral benefits provision, which prevents favourable or unequal treatment among shareholders in a takeover situation.
Considering Lion's motive for forking out around $50 million on WCB stock was for leverage in negotiating contracts with WCB's acquirer, selling to Saputo now looks pointless.
On Tuesday, Lion said it "has no current intention to accept Saputo's takeover offer. . . although it reserves the right to do so".
Lion, which is owned by Japanese behemoth Kirin, has written off billions of dollars from its Australian dairy acquisitions and has struggled in the highly competitive retail environment.
A glance over the company's past financial commentary shows that the low value, high volume cheese category has been a weight on Lion's business for some time.
Lion apparently views its WCB stake as a means of shoring up its position and stemming the bleeding in a price-driven business line with high private label penetration.
Meanwhile, Bega Cheese and Murray Goulburn will reap respective cash proceeds of around $101 million and $93 million from selling their WCB shares, fuelling speculation there will be more deals in the red-hot dairy sector.
Australia's biggest privately-owned dairy processor, United Dairy Power, is on the brink of being sold for around $70 million to a Chinese buyer.
UDP founder Tony Esposito told The Australian Financial Review earlier in January that a sale was imminent.