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Saputo says the tide turned on Australian deal in mid-December

MONTREAL - Canadian dairy processor and cheesemaker Saputo figured it won a very public battle to acquire Australia's oldest dairy during a third trip Down Under by the company's chief executive before the Christmas holidays.

Lino Saputo Jr. said he sensed people were more receptive while efforts by rivals Bega Cheese and Murray Goulburn appeared to be stalling.

"With Bega's less traction they tendered their shares to us and I think the writing was on the wall after that," Saputo said in an interview Thursday after releasing the company's third-quarter results.

After a decade of pursuing Warrnambool, Saputo said it was successful because it was able to adapt to challenges and convince Australian dairy farmers, government officials and shareholders of its long-term intentions.

"I think people realized that we're not speculators, that we're not hostile people and we're really looking at building strong foundations across all stakeholders in the dairy industry."

Saputo said he hadn't anticipated the time, energy and media attention the company's bid would attract.

Nor was he totally prepared for the national fervour that was stoked by his chief rival, Murray Goulburn Co-Operative, and the election of a new conservative government.

However, he conceded Saputo also benefited from the fact that Murray Goulburn had been hampered by the need to win approval from Australia's competition tribunal.

Ultimately, Saputo said the acquisition is a good strategic fit for the Montreal-based company and that it was able to stay within the "sweet spot" of what it was willing to pay.

"We did not go above what we thought we'd have to pay," he said, even though its final bid could be 37 per cent more than its original offer.

Saputo (TSX:SAP) will pay AU$9.60 or nearly A$530 million if more than 90 per cent of shares are tendered by Feb. 12. So far, it has obtained 78.9 per cent, putting the sliding-scale takeover price at AU$9.40.

The CEO said Saputo hopes to surpass 90 per cent target but isn't doing anything special to convince Lion, owned by Japanese food and brewing giant Kirin, to tender the 10 per cent of shares it holds.

After obtaining a majority of Warrnambool's shares, it will consolidate the Australian dairy's results into its own effective Jan. 21.

Warrnambool could become a springboard to smaller deals in Australia or opportunities in New Zealand. The company also continues to assess several opportunities and also sees possibilities in the United States and Brazil, along with small deals in Canada where it is among the three largest dairy processors.

"I feel very, very good about our position on the world stage in dairy," Saputo said during a conference call.

Saputo said the acquisition of Warrnambool provides it with a management team and platform for further expansions in the Oceania region, a key exporting area to Asia and the Middle East.

Irene Nattel of RBC Capital Markets said growing demand in Asia and elsewhere should benefit companies with global operations to supply product.

"With Saputo's newly acquired foothold in Australia, from which 50 per cent of milk receivals are exported, we believe Saputo will be exceptionally well-positioned to meet growing global demand," she wrote in a report.

Meanwhile, Saputo said its net profit increased nearly 11 per cent to $144.1 million in the third quarter of its fiscal year on a boost in revenues mainly resulting from a large acquisition in the United States.

The company said it earned 73 cents per diluted share for the period ended Dec. 31. That's up from 65 cents per share a year earlier when it earned $130 million.

Revenues were $2.34 billion, up 30 per cent from $1.8 billion a year earlier.

Saputo was expected to earn 74 cents per share on $2.26 billion of revenue, according to analysts polled by Thomson Reuters.

The company said its results benefited from higher selling prices and sales volumes in Canada and international locations outside the United States. Fluctuations in the Canadian dollar and the Argentinian peso increased revenues by $21 million.

The company's pre-tax operating income (EBITDA) increased 22.4 per cent to $260 million.

Its U.S. operations were the biggest contributor to the growth as the segment's profits increased 50 per cent to $121.1 million, largely due to the acquisition of Morningstar Foods on Jan. 1, 2013.

Revenues nearly doubled to $1.14 billion, from $663.6 million a year ago despite lower cheese sales volumes and the negative impact of the lower average block market per pound of cheese.

The Canadian segment, which includes its baking division, saw earnings fall 5.7 per cent to $116.1 million, due mainly to higher ingredient and operational costs. Revenues increased to $955.6 million, from $937.9 million in the prior year.

International operations earned $22.8 million on $249.5 million of revenues. That compared with $8.3 million on $199.1 million of revenue a year earlier.

On the Toronto Stock Exchange, Saputo's shares closed up 79 cents at $52.68 in Thursday trading.

Follow @RossMarowits on Twitter.

The Canadian Press


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