Canada’s Saputo in bidding war for Australian dairy processor

MONTREAL—Saputo Inc. finds itself in a three-way bidding war for an Australian dairy processor after a leading local co-operative set the new standard with an all-cash bid that’s seven per cent higher than the Canadian cheese giant’s offer.

The Montreal-based company says it is evaluating options but industry analysts believe Saputo will boost its $450-million bid.

The target company, Warrnambool Cheese and Butter, urged its shareholders to hold tight while it reviews the A$7.50 per share cash offer from Murray Goulburn Co-operative.

Warrnambool’s board has unanimously backed Saputo’s A$7 per share bid provided it didn’t receive a superior offer.

Murray Goulburn mounted an unsuccessful effort in 2009 to buy Warrnambool and currently owns about 18 per cent of its shares.

Its offer is conditional on receiving no objections from Australia’s competition authorities.

If a takeover is successful, the two Australian dairy processors would have access to 4.5 billion litres of milk representing 41 per cent market share.

Also mounting a bid is Bega Cheese, which also owns about 18 per cent of Warrnambool shares and holds a seven per cent market share.

Both companies are touting their Australian roots to counter their Canadian rival.

Analyst Keith Howlett of Desjardins Capital Markets describes the transaction as very small for Saputo but significant for the two Australian bidders.

He expects Saputo will increase its bid next week after reviewing whether Murray Goulburn would face competition law hurdles and getting the formal response from Warrnambool’s board.

Warrnambool’s shares increased more than four per cent to A$7.89, suggesting investors are expecting higher bids.