Canadian Manufacturing

Saputo may be forced to sweeten bid to secure Australian entry

Analyst Mark Petrie of CIBC World Markets doesn't believe Saputo's price will be enough

MONTREAL—Dairy and cheese giant Saputo may need to improve its bid to secure its offer to buy one of Australia’s largest milk processors.

The Montreal-based company has entered into a $378-million agreement to purchase Warrnambool Cheese and Butter Factory Company Holdings Ltd.

The bid comes following an unsolicited offer by rival Australian bidder Bega Cheese Ltd. submitted on Sept. 12.

Saputo is offering about CAD$6.81 in cash per share for all outstanding shares in Warrnambool.

The board has unanimously recommended that shareholders accept the offer, unless it obtains a better one.

Bega offered a cash and share offer at an implied price of AUD$6.30 per Warrnambool share.

Mark Petrie of CIBC World Markets doesn’t believe Saputo’s price will be enough, due to Bega’s continued interest and 18 per cent equity stake.

Analysts expect Warrnambool would add seven to nine cents per share in earnings for Saputo.

Saputo has been eying a spot in the Australian dairy market for years as it looks to expand its cheese empire to serve the Asian market, which is currently supplied by Argentina.

Faced with intensified competition and limited growth opportunities in Canada, the company has focused on expansion in the United States, Latin America and Oceania.

Chief executive Lino Saputo Jr. has repeatedly said the company has about $2.7-billion in financing, enough financial firepower to support one or several deals.

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