Saputo takes bigger bite of Warrnambool

The latest development in the bidding war for Warrnambool Cheese and Butter has seen the front-runner, Canadian company Saputo, increase its stake in the business.

Now the largest shareholder, Saputo increased its stake from just over 18 percent this week to 20.14 percent this morning.

Saputo has made a $9 per share offer for Warrnambool and its offer is set to close tomorrow, however Food reported earlier this week that Saputo was considering extending this deadline after it was announced Warrnambool’s board supports its bid.

Murray Goulburn has also been a strong contender in the bidding war, however Warrnambool released a Target Statement on Tuesday (7 January) urging its shareholders to reject its $9.50 per share offer, which it claims is highly conditional and is subject to the granting of authorisation by the Australian Competition Tribunal.

According to weeklytimesnow, Murray Goulburn currently owns 17.7 percent of Warrnambool,  while Bega Cheese owns 18.8 percent and Lion 9.9 percent.

 

Shareholders should reject Murray Goulburn’s bid: Warrnambool

In response to Murray Goulburn’s $9.50 per share bid for Warrnambool Cheese and Butter (WCB), the dairy company has urged its shareholders to reject the offer, arguing the offer put forward by Canadian firm Saputo is superior.

Warrnambool today released a Target Statement in response to Murray Goulburn’s offer, claiming that the board unanimously recommends that shareholders reject the offer because Murray Goulburn’s offer is highly conditional and uncertain and is subject to the granting of authorisation by the Australian Competition Tribunal.

The intentions of Murray Goulburn in regards to the future of Warrnambool’s operations are unclear, the statement argues, claiming that Saputo’s offer, revised on 17 December 2013, is superior in terms of overall comparative assessment of value, certainty and timing.

However, a Murray Goulburn press release, issued today, says the company has a “compelling case to obtain authorisation from the Australian Competition Tribunal” and that “Murray Goulburn urges WCB shareholders to wait for the outcome of the tribunal process to properly assess the competing takeover bids for WCB.”

Murray Goulburn managing director, Gary Helou, said, “We urge WCB shareholders to not rush their decision to sell their WCB shares. WCB shareholders should wait until the merger authorisation application process has been determined so that Murray Goulburn’s Offer can be considered on its merits. Murray Goulburn remains committed to acquiring WCB, and believes the combination of WCB and Murray Goulburn will deliver an Australian owned and operated globally competitive dairy company.”

The Competition Tribunal expects to come to a decision by the end of February, however this could be extended.

Saputo is considering extending its Friday deadline for acceptances of its $9 a share bid.

 

Warrnambool bid battle continues

The takeover battle for dairy company Warrnambool Cheese and Butter Factory continues, with Canadian firm Saputo considering extending its Friday deadline for acceptances of its $9 a share bid.

According to the Australian, Warrnambool’s board supports Saputo’s bid, but accepting the offer has been hampered by the recent holiday period, because some shareholders may have failed to mail their acceptance.

Saputo’s stake in Warrnambool is expected to be revealed today, with a Saputo adviser claiming it will be “a little more than 18 percent”, less than a controlling shareholding of 50 percent, and possibly less than takeover rival Bega Cheese’s 18.8 percent stake.

Saputo has the only unconditional takeover offer, following Bega’s withdrawal of its acquisition attempt last month.

The Murray Goulburn Co-operative, which has a has a 17.7 percent Warrnambool stake, has offered a $9.50 a share bid, however this is dependent on approval from the Australian Competition Tribunal, with its takeover dependent on it gaining more than a 50 percent Warrnambool shareholding.

The tribunal decision isn’t expected to be announced until the end of February at the earliest, so Saputo’s offer is appealing to Warrnambool’s shareholders, which include Bega and Kirin Holdings.

Warrnambool's share price has more than doubled since 12 September.

 

Foreign investment and the popularity test: does GrainCorp set a new precedent?

At any other time, Friday’s decision by treasurer Joe Hockey to reject Archer Daniels Midland’s (ADM) A$3.4 billion takeover bid for GrainCorp might have been just another controversial foreign investment decision.

Indeed, were it not for a widely reported split in the Coalition over the proposal, the decision may not have made it out of the business section of the national press.

However, inserted within the ADM-GrainCorp decision was a never-before-seen rationale for rejecting a foreign investment: the tenor of community attitudes and level of popular support. This seemingly minor caveat may radically change the way in which foreign investment reviews are conducted by the Coalition government in coming years.

Australia’s foreign investment framework

Debate about Australia’s foreign investment policy was catalysed in 2008, with the highly contentious “dawn raid” by Chinalco on Rio Tinto.

Since then, an ongoing series of high-profile foreign investment deals has attracted both intense public and regulatory scrutiny: these include the takeover of OzMinerals by China’s Minmetals; the acquisition of Felix Resources by Chinese state-owned Yanzhou Coal; the failed Singapore Stock Exchange bid for the Australian Stock Exchange, SAB Miller’s acquisition of Fosters, and the current takeover bid of Warrnambool Cheese & Butter by Canadian dairy group Saputo.

Australian foreign investment policy presumes in favour of foreign investment, and generally does not enforce local ownership requirements. However, investments in a small minority of cases are screened by the Treasurer to ensure they are consistent with the national interest.

This screening process is conducted by the Foreign Investment Review Board (FIRB), and must be undertaken if an investment: a) is from a foreign government investor; b) is a business investment over 15% of the targeted firm and valued at over $248 million; c) is in real estate; or d) is in a defined set of “sensitive” sectors (such as banking, airlines, airports, shipping, media and telecommunications). All other foreign investment applications receive automatic approval.

Reviewed applications are subject to a six-point “national interest test”, administered by the FIRB. This considers:

  • Impacts on national security
  • Impacts on competition
  • Impacts on Australian government policies
  • Impacts on the Australian economy and community
  • The character of the investor
  • [For state-owned enterprises] The commercial orientation of the investor

Following its enquiries, the FIRB makes a (confidential) report to the treasurer, who may either approve, reject or conditionally approve the investment.

The overwhelming number of screened foreign investments are approved. Over the five years to 2011-12, 38,590 applications were approved (valued at A$860 billion), while only 63 were rejected. The bulk of these were in the real estate sector, and prior to the GrainCorp decision only two major business proposals had been recently rejected: the 2001 Shell takeover over Woodside Petroleum, and the Singapore Stock Exchange’s 2011 bid for the ASX.

GrainCorp: a new populist precedent?

Friday’s decision is significant because it may set a new precedent for how foreign investment is screened. It would appear the ADM-Graincorp decision is implicitly adding a new, seventh criteria to the FIRB’s national interest test: community attitudes and popular support.

In explaining his decision, Treasurer Joe Hockey outlined two reasons for rejecting the proposal: that there is limited competition in the grains handling industry (presently dominated by GrainCorp), and that there was a “high level of concern from stakeholders and the broader community”. He also argued that “allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally”.

Several analysts have argued the competition policy rationale is relatively weak. The Australian Competition and Consumer Commission (ACCC) had already approved the deal in June on the grounds it would be unlikely to substantially lessen competition, and ADM had made significant commitments to improve bottlenecks in the grain handling chain.

Thus, it would seem political concerns have loomed large. One consideration appears to be opposition from the Nationals, who had campaigned hard against the application being approved. But another was widespread community opposition to the deal, with Hockey instructing the FIRB to consider the “wider ramifications” of the deal – including public attitudes – mid-way through the assessment process.

Until now, community attitudes have not been part of the FIRB’s national interest test. While “community concerns” are considered, these are defined in economic terms – a fair return to the community, opportunities for Australian participation, the interests of employees.

The FIRB has not assessed whether an investment is considered “popular”, or how it will influence community attitudes to foreign investment more broadly. Moreover, no recent decision by the treasurer – whether approval, rejection, or conditional approval – has made reference to public sentiments. Until now.

The implications of community attitudes

The ADM-GrainCorp case is of course a single decision, and it is not clear whether this will be a one-off, or will be followed by the Coalition government in future cases. But it raises questions over how community attitudes should be assessed, and whether the FIRB even has the capability to assess them.

Community attitudes are a nebulous and difficult to measure concept. For example: if the majority of the country supports an agricultural investment, but a majority of rural residents oppose it, whose views should dominate? Moreover, the economic policy-focussed FIRB has no experience in assessing community mood, nor the resources or capabilities to do so at present.

Whether this would be a robust test, or simply a “get out of jail free” card that allows the Treasurer to reject controversial cases, remains to be seen.

Secondly, it would significantly reduce legal certainty for foreign investors in Australia. At present, there is a clear set of national interest guidelines, which have been applied in a transparent and consistent manner. A foreign investor will have a good idea as to whether their proposal ticks the boxes before committing, and can be confident the goalposts will not be moved part-way through the process.

Introducing volatile and contested community attitudes into the process may deter investors out of fear their proposals will be decided at the whim of populist politics.

Third, it will “politicise” the foreign investment assessment process. Rather than approving investments based on their economic merits, popular attitudes will also become a key criterion. A number of worrying outcomes may result.

Investment proposals could become an issue for party politics, determined more by the electoral fortunes of the government of the day rather than sound policy criteria. A business’s competitors may try and sabotage a deal by stirring up community opposition, transforming the FIRB process into a politically-contested commercial battleground. Vested interests with something to lose may also use popularity arguments to sink deals, even when they bring net national benefits.

If the example set in the ADM-GrainCorp decision becomes common practice, Australia’s supposedly “open for business” approach to foreign investment may change radically.

Jeffrey Wilson does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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Hockey’s GrainCorp ruling in-line with industry’s position : poll

Joe Hockey’s decision to disallow the acquisition of GrainCorp by Archer Daniels Midland is in-line with what the food and beverage industry believes is best for the country, according to a poll conducted by Food magazine.

The vast majority of voters, who are member of the food and beverage manufacturing industry, were not in favour of US giant Archer Daniels Midland’s $3.4 billion takeover offer for GrainCorp, with 45.61 percent claiming that while GrainCorp has an almost monopoly control of the port grain terminals and storage on Australia’s east cost, it would be better to keep this in Australian hands; and 36.84 percent argued the sale would not be in the best interest of Australian growers.

Just 14.04 percent were in favour of the acquisition, stating that the sale is needed to grow Australia’s agriculture sector and allow it to become a global player, while 3.51 percent were indifferent.

The same poll posted on Food magazine’s sister site, www.fatcow.com.au, which targets member of Australia’s agricultural industry, generated similar responses.

45.75 percent of responses said ADM would have little regard for Australian producers; 32.68 percent said GrainCorp’s monopoly is best kept in Australian hands; 14.38 percent didn’t have a strong view on the matter and just 4.58 percent supported the sale.

Earlier today, Treasurer Joe Hockey ruled against the sale, arguing it was not in Australia’s best interests. He added, however, that he would allow ADM to increase its holding from 19.85 percent to up to 24.9 percent, upon further applications.

 

Government rejects GrainCorp takeover

Treasurer Joe Hockey has ruled against the sale of GrainCorp, Australia’s largest publicly-listed agribusiness, to US giant Archer Daniels Midland.

According to the Australian, Hockey said the $3.4 billion takeover was not in the nation’s best interest, but he would allow ADM to increase its holding from 19.85 percent to up to 24.9 percent, upon further applications.

He said GrainCorp’s network of more than 280 grain storage facilities and seven out of 10 grain port terminals in the eastern states makes it a significant market player.

“Given that the transition towards more robust competition continues and a more competitive network is still emerging, I consider that now is not the right time for a 100 per cent foreign acquisition of this key Australian business,” he said.

Hockey added that the public’s and stakeholder’s concern over the sale had influenced his decision.  “A further significant consideration was that this proposal has attracted a high level of concern from stakeholders and the broader community.

“I therefore judged that allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally.”

Australia is, however, still open for business, he said, and Australia must continue to attract foreign investment.

“Of the 131 significant foreign investment applications we have dealt with, this is the only application we [Foreign Investment Review Board] have prohibited.

“The fact is we need foreign investment, we welcome foreign investment. But it has to be foreign investment that is not contrary to the national interest.”

ADM has expressed its disappointment with the government's decision, arguing that its offer would have been valuable for Australia's economy and producers.

“We are disappointed by this decision. We are confident that our acquisition of GrainCorp would have created value for shareholders of ADM and GrainCorp, as well as grain growers and the Australian economy,” said ADM chairman and CEO Patricia Woertz.

“Throughout this process, we worked constructively to create an arrangement that would be in Australia’s best interests and made substantial commitments to address issues that were important to stakeholders."

In regards to ADM’s current investment in GrainCorp, Woertz said, “As owner of 19.85 percent of GrainCorp, we will look to work with them to maximise returns on our investment and create value for both companies.”

 

 

Should Australia sell GrainCorp? : poll

Food magazine wants to know your thoughts on the pending sale of GrainCorp,  Australia's largest publicly listed agricultural company.

US agribusiness giant, Archer Daniels Midlands (ADM), has made a $3.4 billion bid for the company, Australia’s biggest grains handler, and Treasurer Joe Hockey is due to make a decision on the bid by 17 December.

The potential foreign takeover of GrainCorp has generated heated conversations on both sides of the argument.

The NSW Farmers’ Executive Council says farmers are concerned that the investment needed in GrainCorp’s assets may be passed over in favour of expenditure on the remainder of ADM’s international network, while one of the oldest farm organisations in the US, the National Farmers Union says it’s seen the negatively effects of foreign takeovers in its own country and advised Australia to reject ADM’s offer.

On the other side of the coin, the Australian Competition and Consumer Commission (ACCC) has given the Treasurer a green light on the acquisition, claiming that the deal was unlikely to substantially lessen competition due to the presence of other competitors in the market.

Paul Howes, the Australian Workers Union boss is supportive of the sale, arguing that without foreign investment, Australia's agribusiness will "never become the food bowl for Asia that we talk about'.”

Food magazine wants your opinion! To the right of your screen you’ll see our poll question, with four responses for you to choose from. Please get involved! We’ll publish the results once the poll closes on 8 December.

 

Keep Warrnambool in Aussie hands: UDV

Victorian dairy farmers are heading to Canberra today to argue that Australian processors need a level playing field as they compete with Canada's Saputo in the bid for Warrnambool Cheese and Butter (WCB).

Treasurer Joe Hockey approved Saputo's foreign investment application earlier this month, while Australia's Murray Goulburn is still yet to be cleared by the Australian Competition Tribunal.

"We’ll be asking our political leaders why Canadian dairy giant Saputo was unconditionally and quickly cleared to bid for WCB," United Dairyfarmers of Victoria (UDV) president, Kerry Callow, said.

"As it stands Saputo, a foreign-owned company, has been given a clear advantage over a farmer-owned Australian bidder."

In assessing the bids last week WCB’s board stated that while Murray Goulburn (MG) and Saputo are both offering $9 a share the Saputo offer is superior in terms of timing and execution certainty."

The WCB board went on to state, "the revised MG proposal is subject to numerous conditions including no objection by the ACCC or the granting of authorisation by the Australian Competition Tribunal. Both the timing and outcome of the authorisation process are uncertain."

The United Dairyfarmers of Victoria believes WCB should remain in Australian hands and is encouraging shareholders to recognise the merits of the two Australian companies currently in the running: Bega Cheese and Murray Goulburn.

"The UDV strongly supports the principle of Australian owned and operated manufacturers – where dairy farmers own the company and share in the profits along the way.

"We believe it is important for dairy farmers to have ongoing influence through the milk products’ supply chain," Callow said.

Dairy farmers are the major shareholders in the industry, owning about 90 percent of the farm-to-factory capital invested in Australian dairying.

"Let’s give our Australian-owned dairy companies the best possible chance to deliver our own profitable, globally competitive dairy industry.

"If we don’t take control of our destiny someone else will," she said.

Callow and her vice president, Tyran Jones, will meet with a number of ministerial officers to discuss their concerns today.

 

Libs vs Nats: GrainCorp stoush shows cracks run deep in the Coalition

Socrates once observed that no-one could be a statesman if they were entirely ignorant of the problem of wheat. Once again wheat – or, more precisely, grain handling and the sale of GrainCorp – is drawing attention to the fact that the Liberal-National Party coalition is not a single entity united in its approach to policy.

Australia’s 44th parliament has only just convened and we are already being reminded that the Abbott government is not a majority government but a Liberal-led minority government. Tony Abbott is in power with the support of a party whose history, ideology and support base are different from that of the Liberal Party.

With 58 seats, the Liberal Party does not have the numbers to govern in its own right. It needs nearly all of the 22 votes that National Party leader Warren Truss can deliver to guarantee passage of its legislation.

Farmers vs graziers

The National Party is largely agrarian in orientation, with its origins in a belief that neither of the two city-based parties can truly understand or represent the interests of rural Australia. In 1920, the first leader of the party in the Commonwealth parliament, William McWilliams, pledged independence from both parties. But that commitment was short-lived.

The politics of rural Australia can be crudely divided between “farmers” and “graziers”, united to some extent by their dislike of the trade union movement. The terms don’t indicate their current agricultural pursuits but are indicative of the historical origins of their attitudes and values.

“Farmers” are the descendants of the smaller farmers who entered the industry following the land reforms of the mid-19th century which were initiated by city-based politicians with a romanticised view of the virtues of establishing a yeoman agriculture. Farmers are stereotyped as public school-educated and rugby league players who are more likely to vote for the National Party.

The Nationals tend to favour government intervention in areas of importance to their constituency. Image from shutterstock.com

“Graziers”, in contrast, are the ideological descendants of the squattocracy) and can be stereotyped as private-school educated, players of rugby union and (often) Liberal Party supporters.

Graziers have traditionally been free traders while farmers have been more inclined to welcome government intervention in the marketing of agricultural products.

During the 1950s, the policy aspirations of the then Country Party fitted comfortably with the more paternalistic policies of the Liberal Party which saw high levels of government intervention across the economy.

Over the past 90 years, the Nationals have been prepared to take a stand on issues of concern to their constituency, voting against their coalition partners on more than one occasion. Cracks in the Coalition have frequently reflected the division between the increasingly “dry” economic policies of the Liberals and the tendency of the Nationals to favour government intervention in areas of importance to their constituency.

Contemporary debates such as the sale of GrainCorp, the development of coal seam gas and foreign ownership of farm land all bump up against agrarian notions of the appropriate use of land.

GrainCorp

The Nationals have contributed their share of maverick politicians who have been popular and populist advocates of what is known in Australian as “country-mindedness” – a belief in the special nature of agricultural activity and the virtues of country life.

These mavericks have generally become subdued once in the Cabinet. But we have yet to see if Barnaby Joyce will follow this pattern.

As agriculture minister and deputy leader of the National Party, Joyce is already making his views very clear on the bid by American agri-business giant Archer Daniels Midland (ADM) to take over the grain handling company GrainCorp. He is staunchly and vocally opposed to the deal, putting him at odds with treasurer Joe Hockey.

 

Hockey will decide by December 17 whether the deal can proceed. AAP Image/Dan Peled

Grain marketing is a particularly sensitive area for the National Party, with an historical preference for collective marketing arrangements and a suspicion of “middle men”.

The export single desk, held for nearly six decades by the Australian Wheat Board and then its disgraced privatised successor AWB Limited, was something of an article of faith for the Nationals – but not so for their Coalition partners. When the Wheat Board was privatised in 1999, the two parties were clearly at odds.

ADM’s A$3 billion bid for GrainCorp is likely once again to highlight the difference between the Coalition partners around issues of the marketing of and trading in primary products. Treasurer Joe Hockey will decide by December 17 whether the deal can proceed on national interest grounds.

Bridging the gap

Foreign investment in agricultural land is another area in which Hockey is likely to encounter opposition from his National Party colleagues. Abbott’s election night pledge that “Australia is open for business” is potentially shaky if the Nationals get their way and agricultural land purchases are subject to much lower thresholds for Foreign Investment Review Board scrutiny.

Past Coalition governments have weathered these policy differences and much of the success of the alliance can be credited to leaders of the Nationals such as Tim Fischer and John Anderson who have not been ideologically too distant from their Liberal colleagues and have taken a pragmatic approach to policy.

Abbott’s natural conservatism and historic associations with Democratic Labor Party figures and thinking may assist in bridging the gap between the more economically liberal of his party colleagues and the position of the Nationals.

Life under a Liberal-led minority government may not be as chaotic as the 43rd parliament, but it may well be just as interesting.

Linda Botterill does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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Select Harvest acquires SA almond orchards

Almond business, Select Harvest, has entered into an agreement to acquire almost 100 hectares of land in the Riverland region of South Australia, more than a quarter of which comprises mature almond orchards.

Select Harvest produces private label products and consumer brands including Lucky, Sonsol, Soland, Nuvit, Renshaw and Allinga Farms and while 275 hectares of the land contains mature orchards, it also has the soils and capacity for new plantings.

The purchase price for the land and orchards is $11.9 million, and there's the potential for Select Harvests to double the planted acres.

Select Harvests will also acquire the 2014 harvest, expected to be between 800 and 900 metric tonnes.

Paul Thompson, managing director, said "Consistent with our strategy to grow our portfolio of almond orchard assets, we are delighted to have secured control over these high quality orchards in South Australia, meaning we are now diversified across the state of Victoria, NSW and South Australia.

"We will be establishing our presence in South Australia for the first time and our team is well prepared to enable a smooth transition ahead of the 2014 harvest. The company continues to seek a number of other opportunties at this time, in order to take advantage of the compelling almond industry fundamentals," he said.

 

WCB battle and farmer ownership: dairy at a crossroads

The share price of Victorian dairy processor Warrnambool Cheese and Butter (WCB) has more than doubled over recent weeks in response to a takeover tussle between Australian publicly listed company Bega, Canada’s publicly listed Saputo and Australian cooperative Murray Goulburn (MG).

MG is Australia’s largest milk processor. Its 2,400 farmer-shareholders produce a third of Australia’s milk which is sold in domestic and export markets. Devondale is its main retail brand.

A vote of confidence in the Australian dairy industry

Saputo is one of the world’s ten largest dairy manufacturers. It trumped Bega’s initial offer for WCB, and then raised its bid to trump MG when it entered the fray. Saputo clearly thinks there is money to be made producing dairy products in Australia.

The key ingredients according to chief executive Lino Saputo Jnr are a cost-competitive and reliable supply base (that’s the dairy farmers), and proximity to growing and profitable Asian markets. Saputo’s interest can be taken as a vindication of Australian politicians' views that Australia is well placed to benefit from an impending “dining boom”.

But what about the farmers?

Up until the recent takeover activity the main news coming out of the south-west Victorian dairy industry was of crisis. A depressed milk price and challenging seasonal conditions pushed some farmers to the wall. Are these stories connected? Does corporate confidence signal better times ahead for farmers?

One dairy farmer with strong views on this is Roma Britnell, from Woolsthorpe, 25km north of Warrnambool. As well as being a director of a family-owned company that milks 1,000 cows across three farms, Roma is also involved in the wider industry through her roles as a United Dairy Farmers of Victoria regional policy councillor, and Australian Dairy Farmers national councillor. She is also a former Victorian Rural Woman of the Year.

Time for Australian farmers to understand the benefits of cooperation

Based on her 2010 world tour as a Nuffield Farm Scholar Roma is convinced there is an opportunity for Australian agriculture to benefit from rising global food demand. But the benefits won’t necessarily flow to farmers:

“Having ownership post farm gate is imperative to farmers' ability to influence the price they receive and therefore their future business sustainability. We don’t and can’t influence the international milk price. However, ownership of the product further along the supply chain by farmers does determine how much of the profit (and losses) stay with us.”

Roma is a Murray Goulburn supplier-shareholder, and a passionate believer in cooperative principles: “Without an efficient farmer-owned model to sell through we would be at a significant disadvantage. It seems in Australia we are not listening. Everywhere else I went this was considered a no brainer.”

Global competition more important than local competition

Murray Goulburn previously attempted a takeover of WCB in 2010, but withdrew after receiving advice from the Australian Competition and Consumer Commission (ACCC) that it was concerned about reducing competition in the milk processing industry. Roma argues this is the wrong focus: “It’s the ability of the Australian dairy industry to compete globally that is the main game for farmers, and to win that game we need a larger farmer-owned processor.”

This time around Murray Goulburn is attempting to bypass the ACCC by making an application to the Australian Competition Tribunal for authorisation of the merger on national interest grounds, and has suggested that the Foreign Investment Review Board shouldn’t make a ruling on Saputo’s offer until Murray Goulburn’s application has been considered.

Cooperate or perish?

Tim Mazzarol has argued that, facing global competition and a powerful retail sector, farmers have only three options to strengthen their position: “get larger, find niches or cooperate.”

For Roma Britnell a merger between WCB and Murray Goulburn is an opportunity that may never come again to strengthen farmer cooperation in the dairy industry: “There are lots of variations of the cooperative model around the world so, if the current one isn’t to the liking of our community of farmers, we can change that. But if we lose control it’s going to be very hard, if not impossible, to regain it.”

Not all dairy farmers support the cooperative model, and not all are fans of Murray Goulburn. But MG CEO Gary Helou is convinced the cooperative needs to grow for it, and the Australian dairy industry, to thrive. If he’s right then the WCB battle, which still has a long way to run, may indeed be a crossroads for the industry.

Michael Santhanam-Martin does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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Deputy PM wary of GrainCorp sale

Australia must control its food security, says Deputy Prime Minister Warren Truss, who is concerned that the sale of GrainCorp to ADM could see Australia's agricultural future determined by foreign businesses.

The federal government is currently considering whether or not to approve US grain giant, Archer Daniels Midland's $3.4 billion offer for GrainCorp, Australia's largest grains handler.

According to SMH, the Australian Competition and Consumer Commission approved the deal in June, but Treasurer Joe Hockey said the government needs more time to consider all the issues surrounding the sale, as well as advice from the Foreign Investment Review Board. A decision is expected on 17 December.

If the sale goes ahead, most of Australia's grain infrastructure will be owned by foreign bodies.

The Nationals oppose the sale, and Truss said if it goes ahead, decisions on the Australia's grains industry could be out of our hands.

"On top of that, GrainCorp is the largest listed agribusiness in Australia and if we lose this business to foreign ownership, then we will lose the potential to have an international-standard agribusiness trading around the world," he said.

Truss said both sides of government have identified agriculture as a key part of the country's future, but this would be control to achieve if Australia doesn't own any of the supply chain.

"It's very important for Australia to maintain control of its own food security that we have control of our own destiny in what is an important pillar of our national economy," he told ABC television.

 

ACCC gives Bega’s Warrnambool bid the all-clear

The Australian Competition and Consumer Commission (ACCC) has released a statement confirming that it won't oppose Bega Cheese's proposed acquisition of Warrnambool Cheese and Butter.

Bega and Warrnambool Cheese and Butter each operate dairy manufacturing plants that produce a range of processed dairy products and compete for the acquisition of raw milk from dairy farmers.

But this competition isn't significant enough to road-block the proposed acquisition, according to the ACCC.

"The ACCC considered that there was limited overlap between Bega and Warrnambool Cheese and Butter in relation to the acquisition of raw milk in the dairy region in south west Victoria (and areas of northern Victoria),” ACCC Chairman Rod Sims said.

“The ACCC concluded that a merged Bega and Warrnambool Cheese and Butter would continue to  be constrained by other dairy manufacturers that they compete more closely with in the acquisition of raw milk, including Murray Goulburn and Fonterra.

"Murray Goulburn and Fonterra are also the largest suppliers of each of the processed dairy products supplied by Bega and Warrnambool Cheese and Butter, and would be likely to competitively constrain the parties, in the event that they merge, in the future," Sims said. 

The ACCC recognised that many dairy manufacturers in Australia currently export significant quantities of the relevant dairy products supplied by Bega and Warrnambool Cheese and Butter and would be able to redirect exports into the domestic market to increase supply in Australia. 

The ACCC considered that in addition to competition from domestic dairy manufacturers, imports are also likely to exert a degree of competitive pressure in the wholesale supply of the dairy products supplied by Bega and Warrnambool Cheese and Butter.

Warrnambool is currently the subject of a bidding war between Bega, Murray Goulburn and Canadian processor Saputo, and earlier this week a 9.99 percent stake of the company was bought by the Australian subsidiary of Japanese food giant, Kirin.

 

Kirin buys 10 percent stake in Warrnambool

The Australian subsidiary of Japanese food giant, Kirin, has taken a 9.99 percent stake in Warrnambool Cheese and Butter, solving the mystery as to why the dairy’s shares soared as high as $9.30 on Tuesday.

Warrnambool which is currently the subject of a bidding war between Bega Cheese Limited, Murray Goulburn and Canadian processor Saputo, released a statement to the Australian Securities Exchange on Tuesday confirming that it had no knowledge of what had driven the company’s shares to rise, ABC News reports.

However, close of trade revealed an answer to the question – Kirin had purchased a 9.99 percent stake in the business, marking the latest move in the bidding war for the 120 year old dairy company.

The bidding war for Warrnambool has been making headlines around the country for weeks and Kirin’s recent purchase confirms its position as the 4th entrant into the Warrnambool bidding ring.

 

Pressure mounts to keep Warrnambool in Aussie hands

At a time when Australian owned businesses are under extreme pressure from cheap imports and rising operational costs, pressure is mounting to keep successful processors, such as Warrnambool Cheese and Butter in Australian hands.

Warrnambool has received a host of takeover bids in the past few months. Bega Cheese limited and Victorian dairy co-operative Murray Goulburn have both made offers, but it is Canadian dairy giant Saputo, who have recently raised that stakes by offering a revised takeover bid of $8 cash per share.

Warrnambool’s board has unanimously recommended that the company’s shareholders accept Saputo’s offer in the absence of a superior bid – a move which would take the company out of Australian hands.

Victorian Agriculture and Food Security Minister, Peter Walsh said that sale of Warrnambool to foreign businesses could represent a ‘lost opportunity’ for the Australian dairy industry.

"I think it would be good for the dairy industry if it was a consolidation of dairy assets within Australia so we'd actually have critical mass to compete on the world market," Mr Walsh told The Weekly Times Now.

"I think there was a lost opportunity when … grower-controlled grain marketing organisations were publicly floated and are now owned by multinationals.

"As one of our major export industries, (dairy) needs to capture as much of the value of those export markets for our farmers as possible."

"I think there would be more chance of that being achieved with a consolidation of Australian dairy processing in Australian hands rather than a number of overseas countries having parts of the dairy processing capacity."

Walsh’s comments were echoed by Victorian senator John Madigan who said that his preference was to keep Warrnambool Australian-owned, as multinational ownership of the company could be bad for farmers.

"History tells us while shareholders might make the choice they think is right now, that is often short-lived," he said.

Chief executive of Saputo, Lino A. Saputo Jr said that the final decision is up to the shareholders.

"It is up to the shareholders to decide what is the most compelling offer and I think that we tabled an offer that adds value to shareholders and I hope that all shareholders will see that," he said.

"I'm not going to get into any political statements, nor am I going to change regulations within a country."

Saputo’s offer if accepted by shareholder will be subject to a number of conditions including approval from Australia’s Foreign Investment Review Board.

 

Warrnambool announces board changes

Following the company’s annual general meeting, Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) have announced some changes to the company’s board.

Shareholders voted to return Kay Antony, Neville Fielke and Ray Smith to the board, and elected Robert Lane, current chair of South West Credit Union to fill the remaining position.

Lane is a managing partner of SED Advisory, a business consultancy group, and has also held a number of senior positions in finance and governance throughout his career including the titles of finance controller and company secretary at the Warrnambool Co-operative Society Ltd, which he held for seven years.

Warrnambool’s chairman Terry Richardson, said that Lane’s extensive business experience will provide value to the board.

“The appointment of Mr Lane, with his director, executive and business advisor experience, will contribute to broadening the Board’s skill base needed to meet the ongoing complexities of doing business”.

Lane will replace retiring director, John Gall who served the company for over two decades.

Richardson paid tribute to Gall by stating “John is a long term milk supplier and was a valued and committed member of the Board, providing great service to the company over the 20 years he was a director”.

WCB is currently in the middle of a bidding war with Murray Goulburn, Bega Cheese Limited and Canadian dairy processor, Saputo.

WCB’s board has unanimously recommended that shareholders accept Saputo’s offer in absence of a superior proposal.

 

Murray Goulburn announces bid for Warrnambool

Murray Goulburn has entered a bid for Warrnambool Cheese and Butter, making it the third dairy company to enter a takeover offer.

Murray Goulburn’s has proposed to acquire all the issued shares in Warrnambool via an off-market takeover offer for $7.50 cash per share.

Philip Tracy, Murray Goulburn’s chairman said were the bid to be successful, it would provide invaluable benefit to farmers and remain Australian owned.

“This is an historic opportunity for Murray Goulburn and WCB suppliers and shareholders to create a larger scale, globally competitive Australian dairy food company owned and controlled by Australian dairy farmers. Importantly, it will retain the primary objectives of a co-operative in maximising farm gate returns for farmer owners,” he said.

“It will also support on-farm and industry investment, and in turn grow the Australian dairy industry for the benefit of regional communities.”

According to the statement released by Murray Goulburn this morning, the deal would be fully funded, having secured additional debt facilities from its existing financiers; NAB, ANZ and Westpac.

The deal would create a new 100 percent Australian farmer-controlled dairy food company with strong growth potential in both domestic and international dairy markets with forecasts revenues in financial year 2014 of $3.2b including export sales of $1.4b to over 60 countries.

Warrnambool released a Target’s Statement to shareholders earlier this week, urging them to reject Bega Cheese’s offer to purchase share sighting that Bega’s offer was ‘materially inadequate’, and neither fair nor reasonable.

Warrnambool directors stated that Canadian dairy company, Saputo’s offer was superior to Bega’s.

Saputo is offering an all cash takeover offer of AU$7.00 per share for all the shares in Warrnambool on issue at the end of the offer period, representing CA$378m, which is now $0.50 below Murray Goulburn’s offer. 

 

Warrnambool urges shareholders to ignore Bega’s ‘unsolicited and highly conditional’ offer

Victorian dairy producer, Warrnambool Cheese and Butter has released a Target’s Statement to shareholders urging them to ‘ignore’ any documents sent to them by Bega Cheese Limited regarding the acquisition of WCB shares.

The document sets out the unanimous recommendations from WCB’s directors to reject Bega’s ‘materially inadequate offer’, namely stating that the offer is neither fair nor reasonable and that the Saputo Offer announced on the ASX on 8 October is superior to Bega’s.

“WCB has a highly credentialed management team that is well placed to generate strong future returns from WCB’s unique portfolio of dairy brands and assets,” said WCB chairman, Terry Richardson.

“WCB has a number of business improvement initiatives that are well underway and which are expected to underpin WCB’s outlook for improved performance.”

The document also states that Bega’s offer does not adequately reflect the strategic value of WCB to Bega. It stresses that Bega’s offer is highly conditional and uncertain – potentially resulting in further tax liability for WCB Shareholders and that the offer is highly opportunistic in nature as it fails to reflect the value of a number of recent business improvements initiatives undertaken by WCB.

The takeover offer from Saputo – one of Canada’s largest dairy processors – is being recommended by Warrnambool’s board, who have urged shareholders to accept the offer.

Saputo is offering an all cash takeover offer of AU$7.00 per share for all the shares in Warrnambool on issue at the end of the offer period, representing CA$378m.

Should shareholders choose to take Saputo’s offer, the takeover would be subject to the approval by the Foreign Investment Review Board and will require a minimum acceptance of more than 50 percent of Warrnambool shares to be successful. 

 

Big retailers a global challenge for food and beverage sector

Australian food and beverage manufacturers aren't the only victims of powerful retailers, with recently released research claiming it's a global challenge.

Launched today by advisory firm Grant Thornton, Hunger for growth: Food and Beverage looks to the future, found that the rise of mega-retailers around the world has left industry executives wondering how they can get ahead, with more than half rating market dominance by retailers as a significant or moderate risk to their supply chains and organisations.

National leader food & beverage, Grant Thornton France, Vincent Frambourt, said three-quarters of food and beverage organisations sell into supermarkets or grocery stores, and this is a world-wide problem.

"Food and beverage companies cannot do much to fight against retailers’ power," he said.

Grant Thornton Australia’s food & beverage national leader, Tony Pititto, said Australian food and beverage companies were similarly affected by the global rise in mega-retailers, with Coles and Woolworths controlling some 70 percent of retail sales.

"The market power of the mega-retailers is an international phenomenon with small retailers and suppliers getting squeezed everywhere around the world," Pititto said.

Supporting Thornton's comments, the study found that nearly half (48 percent) of food and beverage executives are considering merger and acquisition opportunities as a way to strengthen their market position over the next 12 months.

Thornton suggested industry executives improve their bargaining power by diversifying customer and product portfolios, building product leaders and developing niche markets.

Despite their concerns, the outlook for food and beverage companies is positive and is poised for growth amid an improved global economic outlook. This is particularly true in Australia, which is leading a wave of renewed optimism as more producers look to China and South East Asia as export markets. 

"China alone has seen a 15 to 20 percent rise in salaries, which is helping fuel consumer demand for food and beverages," Pititto said.

Getting in the way of manufacturers' ability to capitalise on export opportunities is the flow-on effects of the high Australian dollar, increasing logistics and distribution costs as well as pricing, with 92 percent of Australian F&B executives expecting an increase in raw material costs in the next 12 months, compared to 85 percent of the world.

The study found that many Australian companies believed that government assistance to address logistics and distribution costs was a key area that would help their business to capitalise on the Asia exports opportunity.

Trends
The global study, which surveyed 248 business leaders in food and beverage companies around the world, found the top five food trends that will positively impact companies in the next 12 months are:

  • Premium/luxury (60%),
  • Hhealthy/nutritious (59%),
  • Locally sourced (49%),
  • Sustainably produced (46%), and
  • Convenience foods (44%)

Earlier this year the ACCC announced it was investigation Australia's supermarket duopoly, amid claims Coles and Woolworths employ bullying tactics when negotiating with suppliers. Read more here.

 

Bega eases supplier concerns after Warrnambool bid

After last week making a $319 million bid to take over Warrnambool Cheese and Butter, Bega has vowed not to make any immediate changes to how it pays suppliers if its offer is accepted.

According to weeklytimesnow, Bega Cheese executive chairman, Barry Irvin, said the company wouldn't look to change anything in the initial stages of a takeover.

"We absolutely recognise that we can't just come in and change the milk price, disrupt the whole traditional pay system," he said.

Bega Cheese's milk price is weighted towards Spring production and many Warrnambool Cheese and Butter suppliers are geared for late-season incentives.

If Bega is successful, the takeover would result in a business operating across seven sites, with about 1,000 suppliers and 2,000 employees, producing 350,000t of dairy products and generating $1.5 billion in revenue annually.

Weeklytimesnow reports Bega, which already owns 18 percent of Warrnambool, would enjoy market capitalisation of about $650 million.