To farmers, WCB dairy deal is not just about the money

To farmers, WCB dairy deal is not just about the money


Murray Goulburn’s sweetened $9-a-share bid for Warrnambool Cheese & Butter may be far higher than any other offer in the three-way fight for the Victorian dairy company. But in this remarkable $505 million takeover ­battle it is not just about the money. Many farmers who spoke to The Australian Financial Reviewsaid they would consider a lower bid – even from a foreign predator – if they believed it would better serve the state’s dairy industry.While Murray Goulburn managing director Gary Helou has said his bid could create a “national champion,” many farmers are wary consolidation could depress milk prices.

Paul Madden, a WCB supplier and shareholder who owns 340 dairy cows in Victoria’s western district, says accepting the Murray Goulburn bid could destroy competition. “If we do a deal with MG and they combine, we [the farmers] don’t have strong enough competition. If we get too few factories, we don’t have competition with the milk price, and we have to take what we are given,” he said. “We need to keep the competition in it.”

Mr Madden raised concerns about Murray Goulburn’s record.

“I just think [MG] have had their chance to do something about [the industry] for a long time,” he said. “They have to pay the dairy farmers a decent price [for the milk] and if they keep going, they won’t be able to.”

The WCB board had recommended shareholders accept an $8 a share offer from Canada’s Saputo and on Wednesday urged shareholders to “take no action” while it considers the new bid.

Danny Blake, a Bega supplier and a WCB shareholder, agrees the decision for farmers is about much more than the offer price.

“I  think we dairy farmers are looking to see what’s in it for the long term, and the share price doesn’t mean that much to us,” he says. “I really think talking to most farmers we’re really a bit up in the air. Saputo offers competition, Murray Goulburn is a farmer-owned co-op so profits technically go back to the farmers, if Bega takes over it’s Australian but like Murray Goulburn, it means less competition. I really don’t know.”

The WCB board has made its preference clear – a $3.9 million break fee is payable to preferred Canadian bidder Saputo if the deal falls over. About one third of WCB shares are held by farmers or shareholders that have a farming background. Most of the stock is controlled by potential bidders including Bega (18 per cent), Murray Goulburn (17.7 per cent) as well as Lion whose 10 per cent stake is considered a strategic holding.

Former WCB director John Gall – a dairy farmer who resigned last month, and owns 1.2 million shares – said a merger between the co-ops would be difficult because of the soured history.

“It’s very difficult to see them getting together and working towards a common future. They’ve been working in a competitive fashion,” he said. “If they want to go the other way they have to be prepared to pay a very high price which appears to be what Murray Goulburn are doing at the moment or they have to take time.”


Murray Goulburn and WCB have a history of animosity, that trickles down to the suppliers.  One source described it as “vitriolic”, and as clear cut as being a Wallabies or an All Blacks supporter. The strained relationship between the two rivals was exposed when Murray Goulburn previously bid for WCB in 2010. WCB blocked the bid, organising meetings between suppliers and the Australian Competition and Consumer Commission. Between 20 and 30 dairy farmers sent in submissions to the regulator – parts of which the WCB directors are said to have drafted themselves.

“My immediate response is that I would still support Saputo, but I think at the end of it all, we still need to be rational enough that we support the WCB recommendation,” Mr Gall said. “If you have people going in different directions, ultimately it falls into the hands of Bega, clawing away little by little until no one else is interested.”

He also suggested WCB was bailing out Murray Goulburn, citing chief Gary Helou’s comments about sub-scale and scattered nature of the dairy industry assets. “I’m assuming the idea is to use WCB to prop up the rest of the organisation. Murray Goulburn members and others in the industry would be concerned at the number of retirements from the industry and the ability of a co-op to return their investment in shares over the years, when the industry and company is retreating.”

But there are other people who would prefer WCB remained in Australian hands. Lorraine Robertson, who has what she describes as an “average size” dairy farm in Victoria, is one.  However, she attended a meeting organised by the United Dairy Farmers of Victoria in Warrnambool this week which sparked, rather than allayed, concerns about the sector’s future if Murray Goulburn succeeded.

She was concerned about comments from industry consultant Xcheque’s Jon Hauser, who warned there may not be milk price rises in the next five years and questioned the benefits of a merger with Murray Goulburn or any other player.

“If you get milk prices in the high 40¢ a litre you will not have an industry,” The Warrnambool Standardreported Dr Hauser saying. Milk prices in Victoria are presently around the 40¢ a litre mark. Dr Hauser’s comments suggested higher prices are unsustainable even with mergers.

But not everyone shares the same view. Roma Britnell, a small WCB shareholder and Murray Goulburn supplier, says that the only option is to support the co-operative bid if farmers want to retain any sort of control.

“This loyalty to factories which is a historical legacy that the industry is one of the most irrational things that is going on in our industry. It would be really smart of us as farmers to work out . . . we can buy our future by sending our milk wherever we want.”

Ms Britnell said that there was a need for better governance and a better understanding of business and farming at co-operatives’ boards but argues they can be fixed.

Farmer Basil Ryan, who has more than 500 dairy cows and supplies to Murray Goulburn, said he was pleased that the co-op had upped its offer. “It’s very important that we have an Australian-based co-op competing for us in domestic market and overseas. The price for local milk depends on what every company can sell their excess for on overseas market, that sets local market, not competition between factory and factory.”

Mr Ryan said that he considered Murray Goulburn buying the WCB was a bit like buying the farm next to you – it had more value for the immediate neighbour.


Bega ramps up Warrnambool bid to $8.87 a share


Bega Cheese executive chairman Barry Irvin will travel to Warrnambool next week to make his pitch directly to Warrnambool Cheese & Butter shareholders and suppliers after upping its bid to $8.87 per share a day after rival bidder Murray Goulburn jumped to a $9-a-share cash offer.

Bega, which owns 18 per cent of WCB, also declared its offer unconditional, allowing WCB shareholders to receive the offer of $2 cash and 1.5 Bega shares within eight days of accepting the offer.

While the offer is below Murray Goulburn’s $505 million bid, Mr Irvin said Bega’s offer was “responsible in terms of the future gearing of the combined entity” and could be accepted now.

“There’s nothing preventing a shareholder from accepting the offer and getting the cash and the shares,” he said.

“This offer is predicated on creating value and improving returns for shareholders and dairy farmers alike. We’ve structured the offer to allow shareholders in WCB to participate in the combined business and it will be very strong in terms of the gearing ratio.”

Farmers and analysts have expressed concerns about Murray Goulburn’s balance sheet and the co-operative’s ability to pay a high milk price and service its debt post-acquisition.

Bega’s revised bid will be its last roll of the dice in the dramatic three-way takeover tussle for WCB between Bega, Canada’s Saputo and Murray Goulburn.


In an effort to maximise acceptances and take full advantage of dropping all of its conditions, Bega will also pay a handling fee of 0.75 per cent to brokers in respect of valid acceptances in relation to Bega’s offer.

The handling fee will range from $50 to $750.

Kidder Williams managing director David Williams, who is advising Bega, said Bega is a “real town, real cheese and a real bid, just like Bega’s advertising.”

“Our offer can be accepted today and you get paid in Bega’s shares and cash. Or you can wait for an uncertain amount of time to see whether Saputo and MG get through their conditions,” he said.

“This is not a bid from Casper the friendly ghost, its a bid from Bega Cheese. We’re giving them more than price, it’s about a conservatively geared company that’s got a history of paying top milk prices and a track record that can be observed.”

This week Saputo’s $8-a-share cash bid, which had won the blessing of WCB’s board, was approved by Treasurer Joe Hockey without conditions and Murray Goulburn trumped Saputo with its improved bid.

Bega had been anticipating another move from Murray Goulburn and was playing a waiting game before making its next move. The Bega board met at 7am AEST on Thursday to discuss its bid and decided to pull the trigger and up the scrip component of its offer.


The WCB board has been highly critical of Bega’s scrip, saying the stock is overvalued and cash is king.

RBS Morgans analyst Belinda Moore said Bega was unlikely to win the support of WCB’s board with its revised offer.

“We don’t believe that the WCB Board will support Bega’s revised offer given it thought that Bega’s scrip was overpriced at much lower levels and it now includes a takeover premium following Fonterra buying 6 per cent,” she said.

“Based on our Bega FY14 forecasts, the stock is trading on an EV/EBITDA multiple of 11.1x. This is just below WCB at 11.3x based on Bega’s new consideration.”

In a deal full of twists and turns, dairy giants Lion and Fonterra have also seized strategic stakes to secure their place in any future negotiations.

Lion snapped up 9.9 per cent of WCB last month at $9.25 a share while Fonterra grabbed 6 per cent of Bega at $4.95, as both parties look to secure important supply contracts.

Murray Goulburn owns 17.7 per cent of WCB, with around 30 to 40 per cent of register in the hands of the Warrnambool region locals.

WCB shares were up 0.2 per cent to $9.12 at 1pm on Thursday and Bega shares were down 0.9 per cent to $4.54.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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