Cheese wars: Fonterra buys into Bega

Battle for control of Warrnambool takes an unexpected turn

a woman

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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.

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

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