What’s next for Warrnambool?

The Australian takeover panel on Friday dealt a hefty blow to Canadian dairy company Saputo in its quest to acquire Australia’s Warrnambool Cheese and Butter Company (ASX: WCB). The panel ruled that Saputo must stop processing shareholder acceptances of its revised $9 to $9.20 bid for the Australian dairy company while the panel considered a rival bid from Australian co-operative Murray Goulburn.

Saputo last week upped its offer for Warrnambool from $9 to $9.20 on the proviso that it received acceptance from 50% of Warrnambool shareholders by 13 December. Then, on Friday, Murray Goulburn improved its bid to $9.50 a share and urged the Warrnambool board to reconsider paying the previously announced, but then rescinded, 56 cents per share special dividend to take its offer to $10.06.

The Warrnambool board accepted the improved Saputo offer and recommended shareholders accept it based on the fact that there were no conditions to the $9 offer, unlike the Murray Goulburn offer which hinges on a decision by the Australian Competition Tribunal. The new Saputo offer is actually less than the previous offer, as the previous $9 offer included the 56 cents per share special dividend.

Based on what appeared to be undue favouritism of the Saputo bid, Murray Goulburn had lobbied publically and privately that its proposed takeover was in the national interest and a better deal for existing shareholders. As a result of the new bid and complaints from Murray Goulburn, the takeover panel ordered Saputo to cease collecting shareholder acceptances while it looks into the bid.

No formal reason for the decision was given, but appears to be bad news for Saputo, which has thus far received acceptances from 9.65% of shareholders. The panel could force Saputo to return the shares or lift its current offer to $9.56, in line with its previous offer. The 50% level is required for Saputo to approach Warrnambool’s major shareholders Kirin Holdings (9.99%), Bega Cheese (ASX: BGA) (18.6%) and Murray Goulburn (17.8%) about control of the dairy producer.

Foolish takeaway

The latest development in the battle for Warrnambool Cheese and Butter Company is probably good news over the short term for current shareholders. The analysis by the takeover panel will ensure that shareholders will get the most money for their shares. Having said that, Warrnambool shares have returned nearly 160% in 2013 and currently trade at $9.24, above Saputo’s offer but below that of Murray Goulburn.

If the Saputo bid is rejected by the takeover panel, investors will be waiting until potentially March 2014 for a ruling from the Australian Competition Tribunal.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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