The frenzy over Warrnambool Cheese & Butter is being driven by Asia’s thirst for guaranteed clean, non-contaminated diary products.
Asia can’t produce enough to meet demand and Australia produces twice as much as it needs.
Southeast Asia ($816 million) is the big market, followed by Japan ($518 million) and the rest of Asia ($698 million).
China is the big emerging opportunity, especially since a contamination scandal involving baby milk formula.
For example, the head of New Zealand dairy giant Fonterra told The Australian earlier this year that China had gone from consuming one litre per head per capita of dairy products in 2007 to 10 litres this year.
Warrnambool, with its production capacity and Australia’s reputation for clean food, is a perfect springboard into Asia.
At least four companies are in play for control of Warrnambool, the oldest dairy business in Australia.
They are Canadian dairy giant Saputo, Bega Cheese, Murray Goulburn and Japan’s Kirin through its subsidiary Lion (Pura milk, Coon cheese, Berri fruit juice) which has secured a full takeover blocking stake of 9.99 per cent. Here’s what its shares have done since Bega first showed interest in the company last month.
The Lion stake is seen as it moving to protect its business with Warrnambool which makes Coon and Cracker Barrel products for Lion. Warrnambool makes the cheese and Lion packages it in a nearby Victorian plant.
However, Murray Goulburn and Bega also have stakes of more than ten per cent in Warrnambool.
Saputo has offered $8 a share but the market has pushed the price to $9.30. Good profits are being made considering the shares were at $4 July this year.
Lino Saputo, CEO of Saputo, told the Financial Review there are very few dairy producing nations and Warrnambool would become Saputo’s export foothold into Asia.
“I was born in this industry, I’ve got milk going through my veins and I’m a huge cheese consumer,” he says.
“The milk base is very important, the infrastructure is very important, and the quality of the employees and the quality of the management team is very important. We believe this would be an ideal platform for us to have in Australia.”
The battle for Warrnambool will take a while.
Saputo’s bid, still the best cash offer, needs Foreign Investment Review Board approval and this would be a test for the new Coalition governments view of foreign interests in Australian food companies.
Another factor is the dairy farmers who sell their milk. About 40 per cent of Warrnambool’s shares are owned by farmers. Selling now would boost their private superannuation funds but the farmers may be more concerned about the price paid for their milk by the new owners.