Saputo makes final, sweetened Warrnambool offer after regulatory probe

By Jane Wardell

SYDNEY (Reuters) - Canada's Saputo Inc stepped up its bid for Australia's Warrnambool Cheese and Butter Factory Holdings Co on Tuesday, aiming to knock out its rivals with a final sweetened offer after receiving a regulatory rap over the knuckles.

Saputo's unconditional cash offer of A$515 million ($461 million) for Australia's oldest dairy company will rise as high as A$549 million ($492 million) if it receives acceptances of 90 percent or more of Warrnambool shareholders.

That looks tough on paper given takeover rivals Bega Cheese Ltd and Murray Goulburn collectively own about 35 percent of Warrnambool shares, while Japanese beverage giant Kirin Holdings Co Ltd <2503.T> holds a further 10 percent.

But analysts say Saputo's offer - now rising from A$9.00 to A$9.20 on 50 percent acceptances, A$9.40 on 75 percent acceptances and A$9.60 on 90 percent acceptances - is the clear frontrunner as Murray Goulburn is hamstrung by regulatory hurdles and Bega's offer lags on price.

"In my view it means Murray Goulburn's offer is now not good enough," said Shannon Rivkin, director of Rivkin Securities. "They probably have to come back with an increased offer if they want to stay in the game, otherwise they have to accept the their fate and probably even sell to Saputo."

The takeover battle for Warrnambool has been one of the most hotly contested in Australia in recent years, with Saputo's final offer marking the 10th bid or revised bid since Bega kicked off the bidding war in mid-September.

Acquiring Warrnambool would give Saputo, which has the backing of the Australian company's board, a platform for rapidly growing sales of both traditional dairy products and high-tech milk extracts into China.

Saputo agreed to raise its offer price above 75 percent acceptances and extend the deadline to January 10 to appease Australia's Takeovers Panel, which was harshly critical of previous revisions that gave shareholders special dividends at certain acceptance levels.

In response to complaints from Murray Goulburn and Bega, the panel had ruled on November 29 that Saputo stop processing acceptances while it considered whether to take action.

The regulator said on Tuesday that complex changes by Saputo and Warrnambool were "most undesirable" and "caused confusion and disruption in the market for Warrnambool shares."

However, it stopped short of issuing a so-called "declaration of unacceptable circumstances," which could have nixed Saputo's sweetened offer, and instead accepted commitments to increase the value of the offer above 75 percent acceptances.

Saputo declared the revised bid price final, meaning it cannot further sweeten its offer, but it reserved the right to extend the offer deadline again.

"It is a simple clean cash offer, at a very attractive price, designed to encourage acceptances and deliver greater value to WCB shareholders," a Saputo spokesman said in an emailed statement.

REGULATORY HURDLES

Saputo said it would immediately begin processing the acceptances that have been steadily building since the regulatory freeze.

As of Monday, it had received acceptances worth 16.916 percent, taking it close to the 18 percent stakes held by each of Murray Goulburn and Bega. Saputo has been picking up shares from Warrnambool's dairy farmer and supplier base, which collectively held 30-40 percent of the company before the takeover battle.

Saputo and Murray Goulburn have been the more aggressive bidders in the race for Warrnambool, while Bega has trailed with a cash and shares offer currently worth around A$515 million.

Murray Goulburn is hampered by the fact its A$9.50 per share, or A$530 million, offer is conditional because it requires competition regulator approval that could take months.

The Australian Competition Tribunal has set February 10 as the start of public hearings into Murray Goulburn's offer, with a decision likely to take up to three to six months.

Warrnambool shares rose 0.2 percent to A$9.27, having more than doubled since Bega kicked off the bidding war in mid-September. Bega shares were unchanged at A$4.39. Saputo shares closed 0.1 percent lower at C$47.17 in Toronto.

($1 = 1.1160 Australian dollars)

(Additional reporting by Maggie Lu Yueyang; Editing by Christopher Cushing)

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