A higher offer for Warrnambool Cheese

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
08 October 2013, 10:16 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

Warrnambool Cheese (WCB) has announced it has received a higher takeover offer from Canadian dairy company, Saputo.

Saputo is offering A$7.00 cash per share plus up to 56c of franking credits. The special dividends comprise of two parts:

  • if Saputo obtains an interest of at least 50.1% in WCB, WCB may pay an initial fully franked dividend of up to A$0.46 per share; and
  • if Saputo obtains an interest of at least 90% in WCB, WCB may pay an additional fully franked dividend of $0.85 per share, or such amount so that the total of the initial and additional dividend is up to $1.31 per share.

Saputo was rumoured to have bid for WCB last time it was in play. 

The Saputo offer is materially higher than BGA's offer which, at close of trade Monday, equates to A$6.30 based on its scrip ratio of 1.2x and A$2.00 of cash.

Saputo's offer (A$7.00) equates to a 55% premium to WCB's last closing price before the BGA offer and based on our forecasts, an FY14F EV/EBITDA multiple of 9.1x. This is above the average EV/EBITDA multiple of the recent dairy transactions of 8.7x forecast earnings. We highlight that the companies which have attracted these types of multiples have been large diversified dairy companies with strong retail brands.

Saputo's offer is conditional on it receiving at least 50% of WCB and FIRB approval.

The WCB Board has said that it supports Saputo's offer in the absence of a higher offer.

What we think

The higher offer highlights the strategic nature of WCB's assets. WCB is clearly in play and it will be interesting to see if BGA (18.0% owner of WCB) will beat the new offer. We also question what Murray Goulburn's (17.3% owner of WCB) intentions are.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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