WARRNAMBOOL Cheese and Butter (WCB) directors have advised shareholders not to accept the takeover offer by Bega Cheese.
In a letter to shareholders posted on the Australian Securities Exchange website yesterday, chief executive David Lord and chairman Terry Richardson said the offer was inadequate, did not reflect fair value for WCB shares and did not fully reflect the strategic value of WCB to Bega.
Bega has made an off-market offer to WCB shareholders of 1.2 Bega shares plus $2 for each WCB share in a bid to take over the company, in which it already holds an 18 per cent interest.
WCB’s letter says the board and company advisers have undertaken a detailed review of the offer and unanimously agreed to advise shareholders to reject the offer.
“The timing of Bega’s offer is highly opportunistic and fails to reflect the value of a number of recent business improvement initiatives undertaken by WCB,” the letter says.
Mr Lord told The Standard a letter would be posted to shareholders next week containing additional information and financial analysis, before its formal target’s statement goes out in a couple of weeks.
“We’re getting information out to shareholders as it becomes available. Our target’s statement will go out when we have compiled and considered all the relevant information,” Mr Lord said.
“The board is confident that when shareholders have all the relevant information they will also come to the conclusion that the offer does not reflect the value that WCB represents to Bega.”
Bega chairman Barry Irvin said he expected the offer documents to reach shareholders next week.
“We’re awaiting clearance from the Australian Securities and Investments Commission, which we’re expecting to get this afternoon (Thursday). Assuming we get clearance we will then print the offer and post it,” Mr Irvin said yesterday.
With Bega’s offer being a direct off-market approach to shareholders, WCB directors can only advise shareholders.
They have no power to reject the offer, as they did with Murray Goulburn’s on-market bid in 2010.
In urging shareholders to reject the offer, WCB said merging the two companies would yield greater savings through synergy than suggested by Bega.
Bega has estimated these savings at $7.5 million annually through reduced corporate costs, greater buying power and more efficient use of facilities.
Mr Irvin welcomed this assessment.
“We’re really pleased if they think we will make even greater savings — that’s even more reason to accept the offer,” he said.
Mr Lord countered this by saying the undeclared potential saving was under-estimating the true value that WCB represented to Bega.
He said some of this extra saving would come from allowing Bega to move production away from two small, inefficient factories located in Coburg and Bega.
“Owning WCB would allow processing from these facilities to be moved to Allansford. That’s part of the value that WCB represents to Bega and the board does not believe this is reflected by the offer.”
Mr Irvin said corporate savings would come from abolishing the WCB board of directors and restructuring management at the Allansford factory.
Mr Lord said WCB had engaged PricewaterhouseCoopers to complete a report into its full-year earnings forecast, which will be included in the target’s statement, along with WCB’s formal response to the offer.
WCB shares hit a record $6.19 yesterday before closing the day at $6.18, while Bega shares also hit a record $3.56 before closing at $3.48.