THE offer by Bega Cheese for Warrnambool Cheese and Butter (WCB) shares is fair, according to a leading market analyst, but he has advised shareholders not to sell just yet.
Mark Topy, of investment bank Canaccord Genuity, said the value of the offer was higher than his company’s valuation of WCB, but advised that Bega might increase its bid later in the offer period.
“We continue to see the takeover offer as a fair price, although this does not preclude the possibility of the offer being increased,” Mr Topy said.
Bega Cheese has offered WCB shareholders 1.2 Bega shares, plus $2 for each WCB share. The offer period opened on Wednesday and will be in force until November 28.
“Normally the company making the bid will have a little in reserve,” Mr Topy told The Standard. ‘‘We could see a small increase in the offer later in the offer period.”
He said Canaccord Genuity had increased its valuation of WCB shares in light of the improved trading outlook announced to shareholders on Wednesday, putting the value at $5.30.
Based on the current Bega share price of $3.65, the offer is worth $6.37 per WCB share. WCB shares are trading at $6.40.
Mr Topy said the offer was “compelling” and he believed shareholders and suppliers would benefit from a merger because Bega’s performance is more stable.
He speculated that if the takeover did not succeed, the value of WCB shares would recede to possibly the $4.60 range.
He said WCB’s improved earnings forecast was partly based on this season’s strong dairy commodity prices, a factor that was not likely to last.
“Our valuation approach reflects the historic volatility of WCB’s earnings, related to commodity prices. Bega would be likely to shift this product mix over time,” Mr Topy said.
Meanwhile, Murray Goulburn’s stake in WCB has increased. The co-operative’s holding of 16.26 per cent has lifted to 17.26 per cent through dividend reinvestment.
The reinvestment signals that Murray Goulburn probably intends to hold on to its interest in the company, even though Canaccord Genuity last week said it would be wise to sell, given its high level of debt, accumulated during the past year through restructuring and expansion commitments.
Murray Goulburn’s retention of its shares would block Bega from achieving the 90 per cent acquisition needed for a full takeover.