Bega Cheese bids for Warrnambool Cheese and Butter

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Cheese manufacturer eyes off role as Big Cheese in Australian dairy industry

Bega Cheese bids for Warrnambool Cheese and Butter
Bega Cheese in bid to take over Warrnambool Cheese and Butter

Warrnambool Cheese and Butter (WCB), Australia’s oldest dairy processor, will become part of Australia’s largest listed food company if Bega Cheese is successful with its takeover bid.

Bega yesterday announced an off-market takeover over for all issued shares in WCB, which will enable a merger of the two companies.

If the takeover goes ahead, Bega will swamp rival dairy producer Murray Goulburn, currently Australia’s largest and a 14.5 percent shareholder of WCB, to emerge as the clear leader in the industry.

Bega is making significant investment in food industry supply chains.

According to Bega Supply Chain General Manager Grattan Smith (pictured), the company’s sophisticated and complex supply chain is central to their success.

"Bega Cheese operates a global supply chain network, procuring and selling materials and products around the world," Smith says on the company’s website.

The company sells products around the globe through multiple distribution channels.

Smith says it’s too soon to predict what outcome the possible merger will have on the company’s supply chains.

With Bega’s existing NSW facilities at full capacity, the company is spreading its wings in Victoria, reducing risk through location and product diversification.

The company now has controlling shares in Tatura Milk Industries, as well as cheese plants in Coburg and Strathmerton where it manufactures, packs and supplies Kraft products.

It now operates two of the largest cheese cutting, packaging and processing plants in the world.

Bega Executive Chairman Barry Irvin says the combined businesses will create a business that operates over seven sites, produces 353,000 tonnes of dairy products, and processes around 1.6 billion litres of milk from 1,000 dairy farmers.

The company also employs approximately 2,000 people in regional Australia.

"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," Irvin says.

Irvin estimates those synergies to be around $7.5 million per annum.

"Customers, dairy farmer suppliers, and employees will also benefit from being associated with a larger, more diversified organisation, an enhanced market position, and a scale that is globally relevant."

Bega’s revenue is already up 12 percent this year to $690 million but the merger of the two companies would generate revenue in the vicinity of $1.5 billion, giving it a market capitalisation of around $650 million.

The offer, which gives 1.2 BGA shares and $2 for ever WCB share, is 28 percent above yesterday’s closing share price for WCB.

"If you own 10,000 WCB shares you will receive 12,000 BGA shares plus $20,000 cash," Bega CEO Aidan Coleman says.

Both companies’ shares rose on news of the offer, with WCB shares soaring 28 percent to $5.77 by late yesterday.

Irvin said the potential synergies are substantial and would be delivered while preserving WCB’s identity and brands.

But the 125-year-old company is urging shareholders to hold off on accepting Bega’s offer until the company has an opportunity to review the bid, saying shareholders still have ample time to make a decision.

It is thought the deal could trigger more consolidation in the dairy industry.

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