AN independent valuation of Warrnambool Cheese and Butter (WCB) has placed Saputo’s cash offer for the company just above the lower end of the value range.
KPMG Corporate Finance has valued WCB shares at between $6.96 and $7.49, placing Saputo’s cash bid of $7 per share just within the range.
But Saputo’s offer gives WCB the discretion to pay two fully-franked dividends that would lift the value, depending on the tax position of individual shareholders.
WCB directors have advised shareholders to accept the offer.
Under the Saputo offer, WCB can pay a fully-franked dividend of 46 cent per share if Saputo obtains at least 50.1 per cent of WCB shares and another 85 cents if it gains at least 90 per cent. The dividends are together worth $1.31 and would add franking credits of up to 56 cents per share for some shareholders in the case of a full takeover.
This would take the value of the offer to a maximum $7.56, the figure depending on an individual’s tax situation.
In the case of a partial takeover (between 50.1 and 90 per cent) the franking credit would be 20 cents, valuing the offer at up to $7.20.
WCB commissioned KPMG to prepare an independent expert’s report in response to the earlier offer by Bega Cheese, which WCB advised shareholders to reject.
KPMG’s report, posted in full on the Australian Securities Exchange website yesterday, concludes that the Bega offer is not fair or reasonable for WCB shareholders.
The report puts the value of Bega’s offer of 1.2 Bega shares plus $2 per WCB share at $5.77 to $6.08 per share. The lower figure is based on the value of Bega shares on September 11, the day before Bega made its offer, while the upper figure represents a Bega share value of $3.40 — a figure that has been exceeded since the last week of September. Bega’s shares have climbed steadily since then and at yesterday’s closing price of $3.85 its offer was worth $6.62.
WCB chief executive David Lord said $3.40 was KPMG’s estimate of the fundamental value of Bega shares.
“It washes out the inflation of Bega’s shares that has resulted from the speculation surrounding the takeover bids.”
Mr Lord said KPMG’s finding reflected what the WCB board had been saying.
“We believe the offer is opportunistic and does not reflect expected positive impact on earnings from our recent business initiatives and improved market conditions,” Mr Lord told The Standard.
Saputo’s offer is conditional on gaining at least 50.1 per cent of shares, while Bega’s offer does not require an acquisition threshold.
Bega and Murray Goulburn jointly hold 35 per cent of WCB shares. If both retained their holdings, Saputo would need to obtain 77 per cent of the remaining shares to reach its ownership threshold.
With 38.5 per cent of the WCB share register held in the local area, the opinion of farmers and the community is crucial in the takeover battle.
Bega told shareholders on Friday that it would press on with its bid and would therefore be retaining its holding. Murray Goulburn has said it “will now take time to consider its options”.
WCB shares have continued to trade in the $7.20 range. Yesterday’s trading closed at $7.21.