BEGA Cheese has made an offer to take over Warrnambool Cheese and Butter (WCB).
The New South Wales company yesterday made an off-market offer of 1.2 of its own shares plus $2 for every WCB share, equivalent to $5.78 per share.
The $320 million offer, which will open in two weeks, will be open to all holders of the 45 million WCB shares that Bega doesn’t own. It already holds an 18 per cent stake in WCB. Before the offer, WCB shares had been trading on the Australian Securities Exchange (ASX) in the $4.50 range. The market closed at $4.51 on Wednesday.
The offer is 28 per cent higher than the Wednesday close.
Bega’s offer was posted yesterday morning and the market reacted immediately.
By noon, WCB shares were trading on the ASX for $6 and just over half a million shares changed hands before the day’s trading closed at $5.77 — one cent below the value of the offer and $1.26 above the previous day’s close.
Statutory rules require that the offer cannot open for two weeks and must remain open for at least a month.
In the meantime, Bega will send details of the offer to WCB shareholders, together with a deadline for response.
WCB chief executive David Lord and chairman Terry Richardson said in a joint press statement that the company had not yet had an opportunity to review Bega’s offer.
“WCB’s directors are not yet in a position to make a formal recommendation to shareholders. The directors of WCB will meet shortly to consider the offer in detail.
“Until WCB’s directors have issued their formal recommendation regarding the offer, shareholders are advised to take no action.
“WCB shareholders will have ample time to make a decision in respect of the offer.”
The company has appointed Minter Ellison and CIMB Corporate Finance (Australia) Limited to advise on the offer and assist directors to evaluate and respond.
Neither Mr Lord or Mr Richardson could be contacted directly.
Bega executive chairman Barry Irvin said the synergy of a merged company would bring about $7.5 million savings, made up of reduced corporate costs, greater buying power and more efficient use of facilities.
“We have initiated this move because we believe there is a need for more consolidation in the industry,” Mr Irvin said.
“If our offer is successful you are going to see a very strong listed dairy company with the benefits that come with scale, diversity and efficiency.”
If Bega acquired all WCB shares, it would have a market capitalisation of $650 million.
Bega has been on the acquisition trail for the past few years and also owns Tatura Milk.
If the offer is successful it will have seven sites from Bega to Mount Gambier, in Melbourne and northern Victoria.
“We would have a presence in all Victoria’s dairy regions, which has its own benefits,” Mr Irvin said.
Bega presently has about 40 suppliers in the south-west.
Bell Potter Securities senior adviser Bill Richmond said he believed the offer undervalued the company.
“I believe the company is worth more than the offer that has been made by Bega. There is still more to be played out before this is over. Much more will happen as days go by,” Mr Richmond said.
Bega first took a stake in WCB when it was invited to take a 15 per cent stake through a revenue-raising share issue in November 2010.
It has since increased its holding twice, most recently in May this year when it raised its holding to 18 per cent.
WCB has already been the target of two failed takeover offers by Murray Goulburn, which still holds a stake of about 16 per cent.