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The battle for Warrnambool Cheese and Butter Factory Company Holdings Limited proved to be an action packed contest, which included three competing offers, pre-bid stakes, a range of regulatory hurdles, strategic shareholder stakes and a Takeovers Panel application, just to name a few. Here, we take a look back at how the transaction unfolded, where the parties ended up and the way forward for the newly controlled dairy processor.


  • A competitive bid process with multiple bidders again results in a successful outcome for shareholders, including Bega and Murray Goulburn.
  • Regulatory hurdles will continue to play a major part in any competitive bid process, particularly where different regulatory bodies with different timelines are involved. In particular, the use of the Australian Competition Tribunal authorisation process will be something to watch for in 2014 and beyond.
  • Careful attention must be paid to the inclusion and valuation of any franked dividends in a takeover context, with the Takeovers Panel providing further guidance on how it wants these presented to shareholders.
  • Shareholders, as well as bidders and targets, need to be aware of their ‘truth in takeovers’ obligations, especially where making statements regarding their intention to accept an offer.
  • Saputo wins out, but falls just short of compulsory acquisition and remains locked in an ongoing relationship with Lion.


The three way contested takeover for Australia’s oldest listed dairy processor, Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB), has finally concluded after almost six months of intense competition.

Saputo Inc., the Canadian dairy-giant listed on the Toronto Stock Exchange, has come out on top after closing its offer with approximately 88% of WCB shares. The competing bids from Bega Cheese Limited and Murray Goulburn Co-operative Co. Limited proved ultimately unsuccessful. However, as large shareholders in WCB, both have profited from the bidding war that took the WCB share price from $4.51 (prior to the initial offer from Bega) to $9.40 (under Saputo’s final offer) – an overall success for all WCB shareholders and yet another example of the benefits of having multiple bids on the table.

This transaction, together with recent tussles for Trust Co and RHG Limited, points towards a renewed willingness for bidders to compete for strategic assets, which may result in more positive outcomes for shareholders in 2014.

Three competing offers and two strategic stakes

Bega launched the first offer on 12 September 2013 with a $319 million cash and scrip bid, which WCB rejected shortly after and continued to reject following an increase in the scrip component of Bega’s bid in mid-November. WCB also commissioned an independent expert’s report for Bega’s bid which found the offer neither fair nor reasonable, and assessed a value range peaking at $7.49 for WCB shares (assuming 100% control) – approximately $2.00 less than Saputo’s and Murray Goulburn’s final offers.

On 8 October, less than a month after the Bega offer, Saputo made a $393 million recommended offer of $7.00 per WCB share. Saputo and WCB executed a bid implementation deed which included a unanimous recommendation from the WCB board, together with the intention that all WCB board members would accept the Saputo offer (both subject to fiduciary carve outs). The bid implementation deed also contained market standard lock ups and a 1% break fee. Despite the flurry of increased offers and the inherent difficulties of accessing the changing value and conditionality of the three competing offers, the WCB board continued to support Saputo’s offer throughout the takeover battle. The value of a target recommendation proved to be vital and a strong inducement for the WCB shareholders and dairy farmers.

Saputo’s offer was increased four times – initially from $7.00 to $8.00; then to $9.00 less permitted dividends; then to $9.00 with a 20 cent increase if it achieved 50% of WCB with the permitted dividends proposal removed; and then finally $9.00 with increases of 20 cents, 40 cents and 60 cents if it achieved 50%, 75% or 90%, respectively, of WCB.

10 days after Saputo’s initial offer, Murray Goulburn entered the battle with a $420 million bid at $7.50 per WCB share, which was later raised to $9.00 and then $9.50 in November.

In addition to the three competing offers, further intrigue was raised by two separate strategic stakes being purchased during the bidding period – one being Lion’s acquisition of 9.9% of WCB, and the other being Fonterra’s acquisition of 9% of Bega. Both of these stakes remain, as does the intrigue as to what they might result in.

Jumping the regulatory hurdles

The regulatory landscape of the competing offers played a major part in the way the transaction progressed, as each of the three bidders faced differing regulatory hurdles.

Bega’s main condition was ACCC clearance, which it obtained on 31 October 2013, subsequently going unconditional on 20 November 2013.

Like Bega, Murray Goulburn’s proposal faced competition issues and, in order to satisfy these, Murray Goulburn took the novel approach of seeking authorisation (under a ‘net public benefit’ test) from the Australian Completion Tribunal (“ACT”), filing its ACT application on 29 November 2013.1 This was the first merger authorisation from the ACT since the new regime was introduced in 2007 requiring these applications to go directly to the ACT. The ACCC had previously raised competition concerns in relation to Murray Goulburn’s indicative offer for WCB in 2010, but this process was not completed. In its ACT application, Murray Goulburn relied on the merger's public benefits, particularly those relating to increased competitiveness of Australia's dairy export industry. Ultimately, Murray Goulburn’s ACT application was never able to be heard, but Murray Goulburn’s use of the ACT process was a new initiative from Murray Goulburn. Despite it not being a fully run test case, it will be intriguing to see if this sets a new trend in the completion regulatory landscape for 2014 and beyond.

Saputo too faced a regulatory hurdle in approval from FIRB. On 12 November 2013, Saputo received FIRB approval without conditions. This gave Saputo a clear path to progress its offer while Murray Goulburn remained in its ACT process. Interestingly, FIRB’s decision on Saputo was followed shortly after by the much debated rejection of the Archer Daniels Midland – GrainCorp merger on 29 November 2013. There has been some debate that Saputo’s FIRB approval process should have been aligned with Murray Goulburn’s ACT application process in order that the two offers would become ‘live’ at the same time (assuming Murray Goulburn’s ACT application was successful). However, it remains to be seen whether FIRB would, or should, entertain such considerations.

Takeovers Panel and conditional dividends

Another regulatory aspect of the WCB battle was the Takeovers Panel application by Murray Goulburn in relation to Saputo’s offer.

On 15 November 2013, Saputo increased its offer from $8.00 to $9.00, less permitted dividends which could be paid by WCB. The permitted dividends were conditional on Saputo’s acceptances under its offer, and were valued at 46 cents (with a possible franking credit of 20 cents) if it achieved 50% of WCB, and 85 cents (with a possible franking credit of 36 cents) if it achieved 90% of WCB. However, the record date for the permitted dividends was set after the ex-dividend date, making the valuation of WCB shares for persons who purchased them after the ex-dividend date extremely difficult, given the uncertainty of any future dividend amounts at that time. Following the ASX’s decision not to support trading that excluded the entitlement to the permitted dividends, on 25 November 2013 Saputo removed the dividends proposal and simplified its offer to $9.00 with a 20 cent increase if it achieved 50% of WCB. This change to Saputo’s offer triggered Murray Goulburn’s Panel application.

Murray Goulburn argued that the removal of the permitted dividends was a breach of ‘truth in takeovers’. The Panel was “strongly of the view that unacceptable circumstances had occurred” and that the permitted dividends were subject to ‘truth in takeovers’. However, after Saputo undertook to increase its offer to $9.00 with increases of 20 cents, 40 cents and 60 cents if it achieved 50%, 75% or 90%, respectively, of WCB, the Panel did not make a declaration of unacceptable circumstances.

In its decision, the Panel commented that retrospective/conditional dividends “created uncertainty and were most undesirable” and that it “would not want to see similar arrangements in future”. The Panel has subsequently released a draft Guidance Note on dividends which sets out its view that:

  • it is unacceptable to include the value of franking credits in the ‘headline offer price’;
  • it is acceptable to add cash consideration and cash dividends together, provided the value of the any franking credit is separated by a suitably qualified statement; and
  • a bidder must make it clear how any deduction for franking credits is established (i.e. either by a formula or a fixed amount).2

Where the parties ended up

On 10 January 2014, Saputo announced a final offer closing date of 22 January 2014 subject only to statutory requirements – approximately 2 weeks prior to Murray Goulburn’s ACT application hearing date. This strategic move placed pressure on Murray Goulburn’s ACT process and WCB shareholder who had not yet accepted an offer, and likely prompted Bega’s acceptance of Saputo’s offer for its 18% stake shortly after, taking Saputo past 50% and triggering both a price increase to $9.20 and an automatic 2 week extension of the offer period. Given Murray Goulburn’s 50% minimum acceptance condition, once Saputo went through 50% its bid became incapable of proceeding, and Murray Goulburn subsequently withdrew both its takeover offer and ACT application. It then accepted the offer for its 17% stake, taking Saputo past 75% and triggering both a price increase to $9.40 and another automatic 2 week extension of the offer period.

From a legal viewpoint, Bega’s and Murray Goulburn’s acceptance of Saputo’s offer needed to comply with the Corporations Act requirement that a bidder can only accept a competing offer for their shareholdings if another bidder has increased its offer price.

Saputo’s offer closed on 13 February 2014, having reached an 88% shareholding in WCB and falling just short of 90%, which would have triggered an increase to $9.60 and enable Saputo to proceed with compulsory acquisition.

Interestingly, the 90% level was blocked by Lion who still remains as a 9.9% shareholder in WCB. Lion had initially stated that it has no current intention to accept Saputo’s offer (which is deemed a ‘last and final statement’ under ASIC policy), but this was later qualified with a statement that it ‘reserved the right to do so’. This should stand as a reminder that ‘truth in takeovers’ applies to shareholder statements, and not just the statements of bidders and targets. Shareholders should always take care in making any statements regarding their intention to accept an offer or not.

The market will have to wait and see if there will be another deal to get Saputo to 100%, or if another ongoing stalemate, in the ilk of Country Road and Solomon Lew’s Australian Retail Investments, will remain.

Herbert Smith Freehills acted for Murray Goulburn in this matter.

All amounts referred to in this article are Australian dollar amounts.


  1. See also the article by Chris Jose, Merger authorisation alive and kicking.
  2. See also the article by Simon Haddy and Andrew Rich, New takeover policies on frustrating action, dividends and summaries in takeovers documents.

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Rodd Levy

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Rodd Levy