terry mccrann on wcb takeover offers

Murray Goulburn and Bega hold 36% between them.

The Saputo offer will not be the last IMO.

What Warrnambool Cheese and Butter stands to win and lose from foreign deal

Terry McCrann
Herald Sun
October 09, 2013 12:00AM

http://www.heraldsun.com.au/business/what-warrnambool-cheese-and-butter-stands-to-win-and-lose-from-foreign-deal/story-fni0d8gi-1226735040156

FOR the directors and shareholders of the Warrnambool Cheese and Butter company, the takeover offer from Canada?s Saputo dairy giant is like a gift from heaven.

It promises to put at least another $40 million in the pockets of shareholders — and indeed even more, if they can maximise the benefits of franking credits on dividends.

And it allows directors to recommend a bid that on all conventional assessments fully values the company.

Whether though both the company and the country would nevertheless still be selling out too cheaply, is an altogether more complicated matter.

That question goes to two big issues.

Do we have a full appreciation of the real long-term value of our rural assets and businesses, in a world in which two billion Asians become middle-income earners with the tastes and spending power that goes with that?

Secondly, should the focus in Australian agribusiness be one of aggregation and consolidation among OUR businesses. So we build local versions of Saputo — and indeed Archer Daniels Midland, which is bidding for Graincorp — instead of selling out to them?

The directors of WCB have arguably been hassled into acting too hurriedly in recommending the bid from Saputo.

Although the price of their haste, if they ended up walking back from their `done deal.’ is a relatively modest $3.9 million or just one per cent of the takeover value, to be paid as any break fee.

As the WCB directors argue, the terms offered by Saputo were seductively attractive. It’s $7 cash per share. For those shareholders who can get maximum benefit from franking credits, it’s effectively up to $7.56.

The $7 is 55 per cent higher than the prices at which WCB was trading before the takeover game erupted.

It’s a 21 per cent premium to the value of the competing offer from Bega, using the Bega share at the time it made its offer in September. But only an 11 per cent premium, using Bega’s current share price.

To me, that’s far too thin a premium, on which to `lock in’ a deal; and indeed, to do it before you even tell the market that there’s potentially a live auction for the company. It relies too heavily on the `added value’ of the franking credits.

Presumably, Saputo demanded WCB do exactly that as the price for putting its money on the table.

But a more confident board, with a better understanding of the once-in-a-century strategic value of Australian agribusiness assets would have declined, saying: let the public auction begin......