Saputo’s $523M bid to buy Australian dairy firm may be thwarted

MONTREAL—Saputo’s desire to expand into Australia may be stymied by the efforts of domestic players to block the Canadian dairy giant bid, an industry observer says.

The Montreal-based company has offered to buy Warrnambool Cheese and Butter (WCB) for the equivalent of $523-million, including debt, but finds itself up against three rivals that now own nearly half of Warrnambool.

Warrnambool’s board supports the Canadian cheese and dairy company’s bid, in the absence of a better offer, but Saputo’s offer is conditional on getting majority support from WCB shareholders.

Lion, a Japanese company that processes nearly one quarter of Australia’s milk, is the latest market rival to get involved.

It has purchased a 10 per cent stake in WCB, making it the third-largest shareholder after Bega Cheese and Murray Goulburn Co-Operative, both of which have submitted offers for Warrnambool, Australia’s oldest and fourth-largest dairy.

“Lion considers this stake a continuation and strengthening of this relationship,” it said in a news release.

Irene Nattel of RBC Capital Markets said three of Australia’s milk processors now own 45 per cent of Warrnambool, making it “highly unlikely” that Saputo’s A$8 per share bid will succeed and question “whether any price would get the deal done.”

“At this point it would appear their primary motivation is to block Saputo’s acquisition of WCB,” she wrote in a report.

Media reports in Australia suggest that Lion doesn’t want to buy Warrnambool itself, but is eager to ensure that the successful bidder maintains its cheese production and packaging relationship.

Another dairy—Fonterra—which has 18 per cent market share has appointed advisers as the battle heats up.

The Murray Goulburn Co-operative, the dominant Australian dairy processor with 31 per cent market share, needs the approval of the country’s competition to purchase Warrnambool, which has 10 per cent market share.

Saputo’s latest bid is a seven per cent premium to Murray Goulburn’s offer of A$7.50 and a 20 per cent premium to another bid by Bega Cheese Ltd.

Saputo has been eyeing expansion into the region for years to develop its reach into the Asia Pacific area and capitalize on growing global demand for dairy solids.

Australia is the world’s third-largest exporter of milk products after the European Union and New Zealand, with about 10 per cent global market share.