wcb a takeover target

http://www.standard.net.au/news/local/news/general/wcb-a-takeover-target/1726468.aspx

WCB a takeover target
SHANE FOWLES
16 Jan, 2010 01:00 AM

WARRNAMBOOL Cheese and Butter Factory, which was initially coy about disclosing takeover interest in the company, thinks the ball is in the court of its suitors after it recently rejected two separate proposals worth around $160 million each.
But the hurdles involved in making a bid for Warrnambool Cheese and Butter (WCB) make it unclear how long the interested parties will hang around.
Canadian dairy giant Saputo, which has a $C6.3 billion ($6.57 billion) market value and took a close look at Dairy Farmers in 2008, is said to have lobbed the first proposed offer in late October.
When WCB on December 8 finally informed the market it had received that approach, another bidder - widely believed to be Murray Goulburn - made a rival proposal the very same day.
Saputo later raised its offer, and WCB, advised by Gresham Partners, told the market on December 23 that both bids hovered around the $4 a share mark.
But it added it had rejected both offers, refusing to allow the suitors to access due diligence. WCB has such an unusual structure that any deal would need to be friendly.
There is a constitutional cap on any one shareholder owning more than 10 per cent of the company, although in a few months it will rise to 15 per cent and it will disappear altogether in mid-2011. Any changes to that cap would require the approval of 75 per cent of shareholders.
About two-thirds of the register is controlled by current or former dairy suppliers. Presumably the former suppliers would be willing to sell their shares at the right price, but many of the current suppliers are more likely to be concerned about getting premium prices for their milk.
WCB tends to buy milk at a slight premium to rivals like Murray Goulburn, and therefore any increased concentration in the market could lower prices.
Because Saputo lacks a local business, it is more likely to keep paying premium prices to the milk suppliers, so from that point of view its offer is more attractive. But the board's unwillingness so far to consider bids at twice its share price before Saputo's initial approach means any deal looks unlikely at the moment.
It is possible Saputo and Murray Goulburn will raise their bids as the company's outlook improves, but if not, Royal Bank of Scotland thinks the highly geared WCB will need to raise equity to progress its growth projects.
With a register dominated by cash-strapped dairy farmers, that's easier said than done.