Bega offer 'inadequate', warns WCB boss

WARRNAMBOOL Cheese and Butter  (WCB) has again called on investors to reject the takeover offer by Bega Cheese, describing it as “inadequate.”

WCB chief executive David Lord said the strategic value of the company’s assets was a lot higher than what Bega was offering.

Mr Lord told the ABC Inside Business program yesterday that once WCB shareholders had all the information available it was hoped they’d see that the Bega offer was inadequate.

“What’s a major concern to the board is that fundamental value for these highly-strategic, unique assets that we have in Warrnambool is recognised in any offer,” he said.

Mr Lord said he expected that any buyer should recognise that and also recognise the prospects that the business had.

Bega Cheese has offered WCB shareholders 1.2 Bega shares, plus $2 for each WCB share. The offer period opened last week and continues until November 28.

Mr Lord said WCB had been investing heavily in the business in the past three years and the Bega offer came at a time when the benefits of those investments were due to flow.

“We understand that our assets are attractive to our competitors, particularly Bega, and we understand that there’s a lot of synergy to be extracted from putting the two businesses together,” he said.

Mr Lord said a point the board was trying to make was that WCB’s synergistic value and the strategic value of its assets were a lot higher than Bega was estimating.

He acknowledged that WCB’s profits had been down, in particular last year, but said observers of the dairy export marketplace would say last year was a difficult year for all dairy exporters.

He said international prices were down, the Australian dollar relative to American currency was up and on top of that there were poor climate conditions for Australian farmers.

Mr Lord said the Australian dairy industry’s share in the international market for traded dairy commodities had fallen  dramatically over the past 10 to 15 years because competitors in other dairy exporting nations had grown their dairy production faster.

“So because our production has been static or declining in recent years we’re seeing that our share of the total marketplace is declining and that’s a real issue for Australia,” he said.

He listed a variety of reasons, including climatic conditions with a long period of drought and the impact of the Global Financial Crisis on the confidence of producers to invest in more production. 

But investment analyst Ivor Ries said a merger was inevitable and the most suitable was between Murray Goulburn and WCB.

“Obviously the best combination is Murray Goulburn and WCB because the synergies are larger and the Bega guys are trying to get in before that and have a more diversified business,” he said. 

“But at the end of the day, there’s going to be a merger. Whether it’s Murray Goulburn or it’s Bega, it’s going to be one of those, it’s going to happen and whatever company emerges from that is probably going to end up doing a deal with someone in China because that’s where the big bang comes from.”

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