December 27, 2013

 

China Investment Corporation eyeing takeover of Australia's Warrnambool

China Investment Corporation is backing a Chinese food group to acquire Australian dairy giant Warrnambool Cheese & Butter (Warrnambool), reports The Australian.

 

The acquisition bid by the Chinese company is another twist in the battle for control of the 125-year-old dairy company in four months. Bega Cheese, a major Australian dairy producer, withdrew from the bid on December 20, giving way to the Chinese who have been contemplating the acquisition for weeks.

 

Bega Cheese owns 18.7% shares of Warrnambool and could sell to a Chinese bidder that offered AUD10/share (US$8.88/share). Chairman of Bega Cheese, Barry Irvin, visited China in November and met representatives from Chinese companies.

 

The state-owned China Investment Corporation is eager to take over the company as the Chinese government foresees rapid food price inflation. Meanwhile, Chinese food producers are increasingly looking abroad to secure dairy products for a country hungry for protein.

 

For more than a year, China Investment Corporation has mulled over the plan to acquire Van Diemen's Land Co, which owns and operates 25 dairy farms with a 30,000-head inventory. Other Chinese companies have moved decisively amid concerns about the country's tarnished food-safety records, particularly in milk power products.

 

The Melbourne-based Murray Goulburn Co-operative, which holds a 17.7% stake in Warrnambool, is currently offering AUD9.50/share (US$8.44/share) for Warrnambool. The bid is subject to a ruling by the Australian Competition Tribunal, which is not expected until February 2014 at the earliest.

 

Saputo, which owns a 17.9% stake, made the final offer of AUD9/share (US$7.99/share) that could end on January 10, 2014. However, 13.3% of Saputo's shares are subject to withdrawal rights from Warrnambool shareholders by January 3, 2014 following a Takeovers Panel order.

 

Bega Cheese's Irvin has been considering selling his Warrnambool stake to Saputo, citing worries about risking holding shares that may fall in price after rising 105% since Bega Cheese launched a takeover bid on September 12.

 

Rabobank and Rothschild, Saputo's investment bankers, have approached Bega Cheese's adviser Kidder Williams in an attempt to obtain Bega Cheese's Warrnambool shares.

 

Warrnambool expects to double earnings before interest, tax, depreciation and amortisation to AUD58.6 million (US$52.06 million) in the second half of 2013, compared to the first half of the year.