Saputo's bid for Australian dairy hits snag as regulator orders pause

Photo: The Canadian Press. All rights reserved.

A Saputo logo is shown at the company's annual general meeting in Laval, Que., August 6, 2013. THE CANADIAN PRESS/Graham Hughes

MONTREAL - A bid by Saputo to buy Australia's oldest dairy processor hit a snag Friday when regulators issued a temporary order stopping the Canadian company from adding to its holdings in Warrnambool Cheese and Butter for up to two months.

According to figures released Friday in Australia, Saputo (TSX:SAP) has accumulated 9.6 per cent of Warrnambool shares since the two sides reached a friendly takeover agreement, up from nearly 4.8 per cent a day earlier.

The move by the regulator comes amid an especially tenacious campaign by Murray Goulburn Co-operative, Australia's largest dairy producer and one of two rival bidders for Warrnambool.

Both Murray Goulburn and the other bidder, Australia's Bega Cheese, face their own regulatory hurdles involving the country's competition rules.

Murray Goulburn had applied to the Australian Takeovers Panel to prevent Saputo from processing shares tendered under its bid for two months, or until it makes a final order.

It alleged that Warrnambool's shares had traded for a period this month based on "misinformation as to the terms of the Saputo bid" because of Warrnambool's decision Monday to no longer pay up to AU$1.31 per share in special dividends.

That means shareholders can't access 56 cents per share in "franking" or tax credits from Saputo's earlier offer.

In issuing its interim order blocking Saputo from adding to its holdings, the panel said that didn't mean that it had decided to conduct proceedings or had ruled on Murray Goulburn's application.

However, the decision effectively buys Murray Goulburn some time as it seeks approval from Australia's competition tribunal, a process that could take up to six months.

On Monday, Saputo revised its offer upward AU$9.20 per Warrnambool share if it gets majority ownership, or AU$9 if it doesn't get more than half of the Australian company's stock.

Murray Goulburn responded on Thursday by hiking its all-cash bid to AU$9.50 per share but retained two key conditions — getting approval from Australian competition authorities and obtaining a majority of Warrnambool stock.

The Murray Goulburn offer values Warrnambool at C$514.8 million (AU$532.9 million) — nearly AU$17 million more than Saputo's highest offer.

Irene Nattel of RBC Capital Markets said the regulator's interim order freezes Saputo's bid and effectively brings the timing of its offer closer to Murray Goulburn's, which appears to work in the Australian firm's favour.

"Although Murray Goulburn was earlier viewed as having a significant uphill battle in its pursuit of WCB, Australian press reports suggest that lobbyists hired by Murray Goulburn and seasoned local public relations consultants have been somewhat effective," she wrote in a report.

On the Toronto Stock Exchange, its shares closed down 14 cents at $48.43 in Friday trading.