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Warrnambool plays its cards safe

Warrnambool Cheese & Butter Factory (ASX: WCB) has today released a brief statement to shareholders advising it to “Take No Action” in relation to the unsolicited and conditional takeover bid by Bega Cheese (ASX: BGA).

Bega’s offer of 1.2 Bega shares plus $2 cash for every Warrnambool share has led to Warrnambool’s share price soaring 35% in the past five days. In response to the bid, the board of Warrnambool appear to be playing its cards safe by highlighting that it will “consider whether Bega’s Offer adequately reflects the value of the WCB business today, the expected future earnings uplift from initiatives underway and the improving market conditions. Given the highly favourable outlook for WCB, we consider the timing of the Offer to be highly opportunistic.”

Meanwhile, in announcing the bid Bega’s Chairman Mr Barry Irvin suggested that “the benefits for each company’s shareholders, many of whom are farmer supplier shareholders, are highly attractive. Both groups of shareholders will access the synergies that can be realised by a successful merger, which we estimate will be $7.5 million per annum.”

The bid for Warrnambool comes at a time of increased capital market activity. Not only is there increased chatter regarding a number of pending initial public offerings that may shortly launch but a three-way tussle between financial services firms IOOF (ASX: IFL), Equity Trustees (ASX: EQT) and Perpetual (ASX: PPT) for Trust Company (ASX: TRU) continues to heat up as each suitor jockeys for a winning position.

Foolish takeaway

Not only do a number of acquisitions based on realising synergies make sense for companies to undertake — particularly in a low growth environment — but buying into companies after a takeover is announced can often make sense for savvy investors too.

As has been the case since the initial approach by Equity Trustees to Trust Company, a takeover or merger offer can often bring other interested parties out into the open and lead to further offers above that at which the initial one was pitched. Savvy investors can often find opportunities amongst takeover situations to boost their portfolio’s performance.

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Motley Fool contributor Tim McArthur owns shares in Perpetual.

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