The Motley Fool

Saputo Courting Warrnambool Cheese, but Will It Have to Pay a “Silly” Price?

By Christine Conway

Unless you’re an Aussie, before a few weeks ago, you’d likely never heard of Warrnambool Cheese & Butter. Australian-owned for the last 125 years, this dairy producer is one of the largest milk processors in Australia, producing almost 900 million litres per year. It also makes other dairy products such as cheese, butter, and cream.

It’s been reported that Saputo (TSX:SAP), the largest dairy processor in Canada, is interested in acquiring Warrnambool. Saputo announced a bid for the company of $7.00 per share on October 7.  This valued Warrnambool at approximately $348 million.

Saputo has products in more than 40 countries, and is interested in expanding its presence in the Asian market. It does not have any manufacturing operations in Australia and views this acquisition as an appropriate fit.

Another suitor

Warrnambool’s board has recommended that shareholders take this offer, unless a better one is made. And there is, in fact, another suitor. On Sept. 12, before Saputo’s offer, Bega Cheese published a press release titled “Merger would put Bega Cheese and Warrnambool Cheese and Butter on World Stage“.

Bega Cheese is the largest cheese-cutting and packing company in Australasia, with annual sales over $1 billion. Currently, 30% of Bega’s production goes overseas, with a focus on the Middle East, Southeast Asia, and North Asia. Combining the two firms is something that Bega has been working on for a while. Warrnambool is publicly traded on the Australian Securities Exchange, and Bega already owns 18%.

However, Bega has done something interesting. In its press release on Sept. 12, it mentions that both Bega and Warrnambool have a large number of shareholders that are dairy farmers or are active in the farming community.

Bega also discusses things that would be important to other stakeholders (beyond just shareholders) — for instance, shared values and an emphasis for both companies on local communities and relationships with dairy farmers.


Saputo has made a habit of expanding through acquisition. While the Warnambool board and an independent expert are still recommending the Saputo offer, Bega Cheese has a significant equity stake and a vested interest in the future of Warrnambool.

Just yesterday, rumours of a higher bid from Saputo bid up shares of both Warrnambool and Bega Cheese. Australia’s The Standard quoted one analyst as saying “the prices being offered for [Warrnambool Cheese & Butter] were entering ‘silly prices’ territory.”

Needless to say, it will be interesting to see how this plays out.

For a look at 3 companies that leave little to the imagination in terms of how they might play out in your portfolio, click here now and download our special FREE report “3 U.S. Companies That Every Canadian Should Own”.  These are 3 of the best businesses in the world, and they’ve already made their investors a pile of money.  There’s little reason to believe that the future won’t be very similar to the past for all 3.  Just click here now to download this report at no charge.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Christine Conway does not own shares of any of the companies mentioned at this time.  The Motley Fool has no positions in the stocks mentioned above at this time.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.