Saputo ups offer for WCB

Canadian giant Saputo has increased its takeover bid for local target Warrnambool Cheese & Butter, in another twist in the continuing takeover stoush for the dairy group.

In a statement to the Australian Securities Exchange, Saputo said it had increased its all-cash off-market takeover offer for all listed stock in WCB to $8 a share.

The board of WCB has unanimously recommended the offer in the absence of one that is superior.

“In response to the offer price increase by Saputo, the Board of Warrnambool has reaffirmed their unanimous recommendation that Warrnambool shareholders accept the Offer in the absence of a superior proposal,” the company said in the statement.

“Each Warrnambool director and executive has also reaffirmed their intention to accept the Offer for all of the Warrnambool shares they hold or otherwise control in the absence of a superior proposal.”

Saputo’s offer, while a full $1 more than the group’s previous bid, is still lower than WCB’s last closing price of $8.15.

It values the target at roughly $449 million on a fully diluted basis.

Saputo’s bid trumps a $7.50-a-share offer from WCB by Victorian co-operative processor Murray Goulburn.

Smart Investor recommended readers buy WCB in its September edition on August 16, when the stock was trading at $4.44.

The stock has rallied close to 85 per cent since that time.

As recently as June 30, prior to any whispers regarding a potential takeover, WCB shares were trading at $3.90, implying a market capitalisation of $215 million.

The latest offer represents a 77.4 per cent premium to the closing price of WCB prior to an offer it received from Bega Cheese in early October.

Even though it would appear that Bega is not going to walk away with the prize, it has benefited substantially from the jousting that has occurred.

Based on the revised Saputo bid, Bega will receive cash of about $80 million and more than $5 million in franking credits.

Highlighting the impact that this activity has had on Bega, its market capitalisation has grown from $390 million as at June 30, 2013 to more than $600 million.

As some analysts have pointed out, consolidation within the dairy industry is likely to continue and Bega itself could well become a target.

The favourable position it finds itself in now is that the value of the company has increased by about 50 per cent, effectively elevating the starting point for potential suitors.