Cheese wars: Fonterra buys into Bega

The battle over Warrnambool Cheese & Butter (ASX: WCB) has taken another unexpected turn, with news that New Zealand dairy giant Fonterra (ASX: FSF) has hired a broker to buy 10% of Bega Cheese (ASX: BGA).

Bega, of course, is bidding for Warrnambool, along with competitor Murray Goulburn, and Canadian dairy giant Saputo Inc. Along with the three bidders, another dairy focused company, Lion, has taken a 10% stake in Warrnambool, reportedly as a blocking bid.

Now, the Australian Financial Review (AFR) is reporting that Fonterra has hired broker Goldman Sachs to buy 10% of one of the bidders, Bega Cheese. The AFR reports that Goldman was offering to buy shares in Bega at $4.95 a share, a more than 12% premium to the $4.41 close today.

What motive Fonterra has for taking a stake in Bega remains to be seen. Maybe Fonterra fears that Bega could be a takeover target itself, and it’s buying a stake so it has a seat at the negotiating table, should an offer for Bega eventuate.

A potential long shot could be that Fonterra wants to push up the share price of Bega, to make Bega’s bid for Warrnambool more attractive, and therefore more likely to succeed. Bega today received the consent of the Australian Competition and Consumer Commission (ACCC) for its takeover of Warrnambool. At the same time, the ACCC raised concerns over Murray-Goulburn’s bid for Warrnambool.

Bega is offering 1.2 of its shares plus $2.00 cash for each Warrnambool share. At the price Fonterra is willing to pay of $4.95, Bega’s bid is valued at $7.94 per Warrnambool share. That’s only slightly less than Saputo’s $8.00 cash per share bid, and may mean that Bega is currently sitting in the box seat.

The one major hurdle that all bidders will have to overcome, is that they will need to deal with major shareholder Lion, who is reportedly keen to see Warrnambool stay as a separately listed entity.

Foolish takeaway

As I wrote yesterday, there are more twists and turns still to come, and the battle for Warrnambool appears far from over.

Every Aussie investor knows Telstra, but only the smart money is on the move now... Discover whether you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It's free, click here for your instant download!

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.