07 Nov 2013

Multiple bids spark battle for dairy giant

by Andrew Hay, Michael Corrigan, Esteban Gomez

Warrnambool's register is now crowded with two bidders and a variety of other interested parties, each holding significant stakes and potentially creating a roadblock for any successful bid.

Recent weeks have seen a flurry of bids vying for control of Warrnambool Cheese and Butter. All three bids involve regulatory approval, noting that there is potentially another bidder – Kirin/Lion waiting in the wings and Fonterra making a play on one of the bidders, Bega Cheese. This article discusses the regulatory aspects of the battle for Australia's oldest dairy producer by the three current bidders.


In September this year Bega Cheese made a bid of $2 cash and 1.2 Bega shares per Warrnambool share. In October Canadian company Saputo joined the race with a rival cash bid of $7 per share, which was met with resounding approval by Warrnambool's board.

Subsequently Murray Goulburn Co-operative, Australia's largest dairy company, announced a cash bid of $7.50 per share, which was quickly topped by a revised cash bid by Saputo of $8 per share, valuing the company at approximately $450 million.

In a recent striking turn of events, Lion (which is owned by Japanese food and beverage giant Kirin) has acquired a potential 10% blocking stake in Warrnambool, in a reported effort to influence the outcome of the bids and protect existing contractual arrangements. This was followed by New Zealand's Fonterra, the world's largest dairy exporter, buying up to 10% of Bega cheese, in a reported bid to protect its licensing agreement with Bega.

The rival bids: Saputo's bid

As a foreign investor seeking to acquire a substantial interest in an Australian agribusiness company, Saputo is subject to the Foreign Acquisitions & Takeovers Act 1975 (Cth) (FATA), and has sought Foreign Investment Review Board (FIRB) approval. Currently, FIRB approval must be sought where the interest to be acquired by the foreign investor is valued at greater than $248 million (higher thresholds apply to New Zealand and United States investors in most circumstances).

When FIRB approval is sought, the Treasurer ultimately makes a decision as to whether the proposed investment is contrary to Australia's national interest. In the case of agriculture, Australia's Foreign Investment Policy outlines that the Government seeks to ensure that the proposed investment does not adversely affect the sustainability of Australia's agricultural resources, including their economic, social and environmental contribution to Australia.

The Government typically considers the effect the proposal will have on:

  • the quality and availability of agricultural resources;
  • land access and use;
  • agricultural production and productivity;
  • capacity to remain a reliable supplier of agricultural production to the domestic and international community;
  • biodiversity; and
  • employment and prosperity in Australian communities.

FIRB applications are normally determined within 30 days, although they can be extended by a further 90 days under the FATA (note however, there is no time limit for applications which are made under the Policy only).

The rival bids: Bega's bid

Bega sought approval for its bid from the Australian Competition and Consumer Commission (ACCC).

In a recent development, Bega received a green-light from the ACCC to pursue its planned takeover, removing the last major condition attached to its bid. The ACCC concluded that there was limited overlap in the acquisition of milk between Bega and Warrnambool in the relevant dairy regions of Victoria, and that a merged Bega and Warrnambool would continue to be competitively constrained by other dairy manufacturers, including Murray Goulburn and Fonterra.

In light of the ACCC approval, Bega could seek to increase its bid to remain competitive with Murray Goulburn and Saputo, but has so far remained quiet.

The rival bids: Murray Goulburn's bid

Unlike Bega, Murray Goulburn has chosen to bypass the ACCC altogether and put its case to the Australian Competition Tribunal (ACT), in an attempt to seek confirmation that its proposed bid would have a net public benefit which would outweigh any opposition by the ACCC.

On lodging its application (which is expected to occur this month), Murray Goulburn will be the first company to bypass the ACCC since legislation was passed in 2007 allowing the alternative process. However, the ACT approval process is slow (between three to six months) and the track record of merger approvals based on "national interest" grounds is not good.

Interestingly, this is not the first time that Murray Goulburn has bid for Warrnambool. In 2010 it made a bid but subsequently withdrew following a preliminary statement of issues from the ACCC – which may explain the change of approach this time in applying directly to the ACT.

In late October Murray Goulburn issued a press release stating its wish that Saputo's FIRB application remain unresolved until Murray Goulburn's application to the ACT has been given full consideration. Murray Goulburn's wish may remain just that – there is no compulsion for FIRB to delay its process on the basis of Murray Goulburn's competing takeover bid, which is subject to a different regulatory regime.

What does this mean for the future of Warrnambool?

Rival bidders Bega and Murray Goulburn already own approximately 18% and 17% of the company respectively, along with Australian Dairy Farmers which owns an estimated 30-40%. As noted earlier, Lion recently acquired a strategic 10% stake in the company.
Warrnambool's register is now crowded with two bidders and a variety of other interested parties, each holding significant stakes and potentially creating a roadblock for any successful bid.

Despite recommendations by Warrnambool's board to support Saputo's revised offer, doubts have been cast over the chances of Saputo being able to succeed, given its bid is conditional on 50.1% shareholder acceptance. Speculation is rife that Saputo could instead turn its attentions to Bega. The other elephant in the room is New Zealand giant Fonterra, who has itself bought up to 10% of Bega but has remained quiet so far as to any intentions it may have for Warrnambool, if any.

The three way (or possibly four or five way) race to acquire Warrnambool is a relatively rare event, in which regulatory approval of one bid ahead of its rivals has the potential to influence the decision of target shareholders. Add to this mix the crowded and dynamic nature of Warrnambool's register, and the outcome of this bidding war will continue to be one to watch.

Bids as at 4 November 2013



Regulatory Approval


$2 cash and 1.2 Bega shares per share (approximately $8/share - this will fluctuate depending on the value of Bega shares)

ACCC (obtained)

Murray Goulburn

$7.50 cash per share



$8.00 cash per share










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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.