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Can Bega win the cheese war?

Warrnambool Cheese & Butter Factory (ASX: WCB), one of the major milk processors in Australia has just received notice that competitor Murray Goulburn Co-op, owner of the Devondale brand, has leapt up its share register, increasing its holding in the company  from 11.4% to 16.3%. Murray Goulburn did this is the wake of last week’s Trading Update when Warrnambool management advised that it expected full year net profit after tax to be at least 80% below the previous year.

It now looks almost certain that Warrnambool is “in play” as a takeover target. Fellow Victorian processor Bega Cheese (ASX: BGA), who has held a strategic shareholding in Warrnambool for some time, purchased an extra 1% in March, taking its holding in the company to 17.1%. There are significant synergies to be realised by both Bega and Murray Goulburn from bolting the Warrnambool operation on to their own, setting up the potential for a bidding war to erupt.

More takeover activity

Takeovers can be a tricky and drawn-out process as financial services outfit Equity Trustees (ASX: EQT) is discovering. On Friday the Trust Company (ASX: TRU) responded to Equity Trustees’ takeover proposal, releasing its Target Statement and recommending shareholders reject the offer. Trust Company’s board did acknowledge the potential benefits of combining the two businesses but still rejected the offer on the grounds that Equity Trustees would be underpaying at the current bid. The market seems to agree and is betting a higher bid may eventuate, with Trust Company’s shares rising after the rejection.

Meanwhile, The Financial Standard has reported that UK-based fund manager Henderson Group (ASX: HGG) has purchased Melbourne-based 90 West Asset Management. Henderson’s have previously stated its intentions to increase its footprint in the Australian market. Given 90 West’s focus on agriculture and resource stocks, this looks to be a smart acquisition.

Foolish takeaway 

We’re certainly a distant cry from the heady pre-GFC days of rampant takeover activity. Takeovers during boom times have a habit of being value destroying for shareholders of the acquiring company. At this point in the economic cycle, things are more restrained and sensible and there is a reasonable possibility that takeover deals done will create value for acquiring companies.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in Henderson Group.

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