Warrnambool Cheese & Butter: Press Commentary on the Battle for Control

David M Trende Compiled with the assistance of John Foley, Librarian, Melbourne Business School. Copyright 2014.

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A period of turbulence in the Australian dairy industry intensified further during 2013 when Warrnambool Cheese & Butter

Factory Company Holdings Ltd became the object of a spirited bidding war between three suitors; two of Warrnambool’s

Australian rivals and the international giant Saputo Inc. of Canada. First, Bega Cheese made an offer in September,

followed by a higher offer from Saputo trumping the Bega bid, and then an even bigger offer from the Australian

cooperative, Murray Goulburn. The conflict escalated from there. Here is how the press saw the war unfold.

Bega's well-timed Warrnambool play Analysis Julie-anne Sprague 13 September 2013 The Australian Financial Review Copyright 2013. Fairfax Media Management Pty Limited. It has always been a matter of when, not if, the nation's dairy industry began consolidating.

The timing of Bega's long-awaited assault on Warrnambool Cheese and Butter Factory has been designed to blunt any

counter-attack rival Murray Goulburn Co-operative may contemplate. Murray Goulburn, the nation's biggest dairy

exporter, unsuccessfully tried to buy Warrnambool three years ago, raising its offer three times to $4.35 a share, valuing

the group at $180 million. This compares to the $319 million Bega – who acted as Warrnambool's white knight to fend off

Murray Goulburn in 2010 – is putting on the table via its cash and scrip bid. The bid values Warrnambool shares at $5.78

each.

Murray Goulburn said in April it wanted to boost its 16.3 per cent stake to 19.9 per cent, albeit at no more than $4.60 a

share. It has stated it had no intention to mount a takeover but, even though there were some concerns from the

competition regulator in 2010, it is a logical buyer for Warrnambool. Bega knows it.

Murray Goulburn under pressure

It makes sense for Bega, which is being advised by Kidder Williams, to swoop just as Murray Goulburn gets a lot on its

plate. Murray Goulburn's balance sheet is feeling the pressure of a headline-grabbing 10-year,$2 billion private label milk

supply contract with Coles. The Melbourne co-operative outbid Japan's Lion, which has long complained it can not make

money on the contract after Coles cut milk prices to $1 a litre.

Murray Goulburn managing director Gary Helou sees it differently. He insists he can make money, but to do that he has to

spend $120 million on two state-of-the-art processing plants. Murray Goulburn has been aggressively chasing milk supply,

but its profits are under pressure. Australian Securities and Investments Commission records show profit for the six months

to December 31 fell 32 per cent to $51.7 million as higher marketing, administration and other expenses took a toll. Its

gearing, based on net debt to equity, stands at a whopping 72 per cent.

The co-operative structure complicates things for Murray Goulburn, which is being advised by Lazard's John Wylie. It can

not as easily tap farmers for big licks of cash.

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It could contemplate a Fonterra-style share trading scheme, where farmers control voting rights but issue shares to retail

investors who can enjoy capital gains and dividends. This process will not be quick.

Bega doesn't want to take its chances. It lodged its bidder's statement on Thursday just as it announced the takeover. This

means its offer can reach Warrnambool's shareholders within a fortnight. Many of them are farmers who have had a tough

12 months dealing with higher input costs, a high Australian dollar and softer dairy prices.

It's a clever play but analysts don't rule out an offshore raider upsetting Bega's apple cart.

Big cheese makes hefty bid to become nation's largest Tim Binsted and Julie-anne Sprague 13 September 2013 The Australian Financial Review Copyright 2013. Fairfax Media Management Pty Limited. Bega Cheese's $319 million bid to create one of the nation's biggest food companies by buying Warrnambool Cheese and

Butter Factory could be threatened by offshore interests, according to investors and analysts.

Bega on Thursday ended months of speculation about a potential bid for the dairy processor, offering Warrnambool

shareholders 1.2 Bega shares and $2 cash for every share they own. It represents a total value of $5.78 for each

Warrnambool share and a premium of 28 per cent to the pre-bid closing price.

While the offer was viewed as attractive by analysts it was not viewed as a knockout blow, with the strategic nature of the

business potentially igniting interest from Asian buyers or Canada's Saputo. Saputo was rumoured to have eyed the

company several years ago, when rival Murray Goulburn unsuccessfully attempted to acquire Warrnambool.

"Warrnambool assets have longevity and are scarce," Perpetual portfolio manager Nathan Parkin said. "I wouldn't rule out

third party interest."

RBS Morgans analyst Belinda Moore said Bega's offer, which equates to 9.4 times fiscal 2014 earnings, was a "good price"

for Warrnambool shareholders.

But Ms Moore said a third party could spoil Bega's plans.

"Demand is rising and these are strategic assets," Ms Moore said. "I wouldn't rule out a third party coming in.

Warrnambool has a sizeable export business, which offshore players would be interested in. But there are two Australian

companies with blocking stakes, which could make things difficult."

Bega executive chairman Barry Irvin said its track record of adding value to businesses, a potential $7.5 million in annual

synergies and the strength of the combined entity made its already "full offer" very attractive to Warrnambool

shareholders. "Bega has made a very genuine and full offer up front and we await the response of Warrnambool

shareholders and the Warrnambool board," Mr Irvin said.

"We understand the business well. We have similar histories, products and markets. It's about putting the businesses

together to get the benefits of size, opportunities in procurement and integration to save on costs," he said.

Speculation has been rife about a potential takeover after Bega emerged as a white knight for Warrnambool as it defended

a hostile takeover from Murray Goulburn in 2010.

Speculation intensified earlier this year when Murray Goulburn upped its stake to 16.3 per cent while Mr Irvin stepped

down from the Warrnambool board.

Murray Goulburn launched a $180 million takeover bid for Warrnambool in 2010 and has been buying shares this year.

Murray Goulburn is a logical buyer, but its $2 billion milk contract with Coles has cast doubts over the strength of its

balance sheet, and may prevent a rival bid.

Murray Goulburn managing director Gary Helou said he was considering the co-operative's options and would make no

further comment.

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Bega already owns 18 per cent of the Warrnambool register, having crept up again according to a substantial filing on

Thursday. Bega's advisor, Kidder Williams, has been snapping up Warrnambool shares over the past six weeks, staying

under the 1 per cent reporting threshold.

While the bid is solid, sources suggested Bega's synergy estimates were half-baked.

The combined businesses would operate over seven sites, produce 353,000 tonnes of dairy products, generate revenue of

$1.5 billion and process around 1.6 billion litres of milk.

While the offer is viewed as attractive by analysts, Australian companies have a history of losing out in agricultural

acquisitions to more aggressive offshore players with deeper balance sheets. The merged entity would likely attract even

greater interest.

"It's a full-ish price, and looks like a good deal. A bigger player in dairy is pretty attractive from an international stand

point," Mr Parkin said.

If the deal is successful, Bega will have a market value of approximately $650 million and may get into the ASX 200.

Warrnambool advised shareholders to take no action until the board of directors were able to assess the offer and make a

formal recommendation.

Warrnambool stock surged 28 per cent on the news to a record high of $5.77 a share, while Bega shares were up 5.7 per

cent to $3.33.

Warrnambool Cheese rejects Bega offer AAP 27 September 2013 Hobart Mercury © 2013 News Limited. All rights reserved TAKEOVER target Warrnambool Cheese and Butter Factory has rejected Bega Cheese's $319 million offer as too low and

not having enough cash component.

``The board of WCB, together with its advisers, has undertaken a detailed review of the offer contained in Bega's bidder's

statement,'' WCB said yesterday.

``WCB directors unanimously recommend that WCB shareholders reject Bega's offer.''

The WCB directors said the Bega offer did not reflect fair value for WCB shares or the strategic value of WCB to Bega.

Furthermore, the potential savings and benefits from a combination of WCB and Bega were materially higher than set out

in Bega's bidder's statement.

WCB said the Bega offer was uncertain, opportunistic, highly conditional and might even result in a potential tax liability for

WCB shareholders.

Personal challenge shapes Bega chief's approach - EXCLUSIVE - REBECCA URBAN, TAKEOVERS 5 October 2013 The Australian © 2013 News Limited. All rights reserved. Balancing work and his family's needs has not been easy

BARRY Irvin might be in the midst of the biggest takeover in the history of the nation's dairy industry, but his week -- an all-

consuming one by any standards -- wound up like any other.

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The executive chairman of Bega Cheese, which has made a $320 million-plus tilt for the Warrnambool Cheese & Butter

Factory Company, flew home to Sydney on Thursday evening to see his wife, Harriet, and son, Matthew.

``Matthew identifies my arrival as entertainment, as he always has,'' Irvin tells The Weekend Australian.

``I can guarantee, I'll be sitting there for about 10 minutes and he'll come down carrying his shoes -- or would have made

his best effort to put them on -- so we can go out. He likes to go out to see the world. He's very good at communicating

what he wants; he just has no words.''

Matthew is 22 and profoundly autistic. For two decades, Irvin, who had been set on a career in banking until his father's

death compelled him back to the family farm in Bega, has juggled the responsibilities of caring for a disabled child, running

the farm and steering the ambitious former dairy co-operative through deregulation, acquisition, a public float and, in

recent weeks, launching an unsolicited bid for Warrnambool.

The 51-year-old father of three has also played a key part in the establishment of Giant Steps, a highly regarded school for

autistic children in Sydney, where he is also chairman.

It's a role that he is actively engaged in. After the shock of Matthew's diagnosis 18 years ago -- and the realisation that he

would not be able to access the support services needed in rural NSW -- Irvin made the tough decision to relocate his

family to Sydney. The recently appointed chairman of Bega Cheese would remain in Bega from Mondays to Thursdays and

fly back to Sydney to give Harriet some respite from caring for Matthew, whose needs were so high the couple were

unable to leave him to go out on their own together for many years.

Weekends were also dedicated to Giant Steps, which, having opted not to charge its students fees, relies heavily on

volunteers and corporate supporters, which include Macquarie Bank, Champ Private Equity, Tetra Pak and Bega, of course.

Irvin is frequently asked whether he believes Giant Steps is successful thanks to the networks he's established as Bega's

chairman. However, he was once asked the opposite -- whether Bega could also attribute some of its own success to the

knowledge and skills that he'd acquired through his involvement with the school -- and the question has stayed with him.

``Giant Steps now has 80 staff and is recognised as an outstanding facility,'' he says.

``The skill base required by those leaders is quite often a great reference point for me when I'm grappling with a corporate

problem that's totally removed.

``There's no doubt that Giant Steps was a whole new, different world that opened up to me . . . so I think they equally

contributed to each other and how we've achieved what we've achieved.''

Founded as the Bega Co-operative Society in 1899, Bega Cheese has grown from a local farmer-owned co-operative into an

Australian Securities Exchange-listed dairy company that generates sales in excess of $1 billion a year and exports to more

than 40 countries. Customers include global food companies, such as Fonterra, Kraft and Mead Johnson, as well as

retailers, including Coles and Aldi.

Irvin's own involvement stems back to when he was in his mid-20s and grappling with his new responsibility of running the

family farm.

Irvin never wanted to be a farmer. Growing up on a dairy farm, he was expected to work every weekend and through

school holidays, and saw farming as a tough life.

With university still out of reach for many country kids, he took a job at the local branch of the State Bank of NSW and was

soon transferred to Sydney, where he started working his way up the corporate ladder.

Despite his emerging passion for his new career, Irvin never really turned his back on the farm. Close to his family, he

couldn't shake the feeling that he'd disappointed them, especially his father, who was battling cancer at the time.

``He would constantly ask me when I was coming back,'' he says.

``He saw my banking career as an interruption. I think he kept expecting me to get over it.

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``I think I always carried a level of guilt, because dad wasn't well . . . so I would drive back to Bega and milk every second

weekend to give him a break.''

As it turned out, those years spent in banking weren't wasted. With the Bega co-operative keen to attract new skills to its

board, Irvin was appointed a director in 1989 and became chairman in 2000. Soon he was taking an active role in driving

the strategy for the business.

Melbourne-based corporate adviser David Williams, who has worked with Irvin for 15 years, believes that teamwork and a

cohesive strategy set Bega apart from the ``short-termism'' that characterises many other companies.

And while many executives are capable of seeing the bigger picture clearly and many are excellent strategists, few can do

both, he says.

``What Barry does differently is put those two elements together to build a business while working with the intensity of an

investment banker,'' Williams says.

``As a balance to his work ethic, he also knows how to celebrate life with a good meal and wine.''

It's that ``bigger picture'' that is driving Bega's takeover bid for Warrnambool, which was rebuffed quickly by the target

company's board for being ``highly opportunistic''.

Irvin is mildly amused by that description.

``I think it's said in a manner that's meant to insult,'' he chuckles. ``I don't know how a $320m-plus offer could be described

as being `opportunistic'. It's an offer that says we see value in the future of the combined businesses. So from that point of

view, sure, we see an opportunity but we're also making an offer that reflects that opportunity.''

Given Warrnambool's track record of vigorously fending off takeover attempts (ironically, it sent Murray Goulburn packing

in 2010 when Bega Cheese was invited to take a cornerstone shareholding), Irvin was not surprised by the board's swift

rejection.

He was, however, surprised to see Warrnambool this week come out with a substantial profit upgrade, claiming that

operating earnings would potentially double to as much as $52m this year, given its lumpy earnings history.

Irvin sees the two companies as ``a natural fit''. According to Bega's bidder's statement, the combined business will operate

from seven sites, processing 1.6 billion litres of milk and producing 353,000 tonnes of dairy products per annum while

generating annual revenues of $1.5 billion. It will have a market capitalisation of $650m.

Irvin points to Bega's acquisition of Tatura Milk Industries as an example of the value his company has previously created.

In 2007, Bega acquired 70 per cent of the loss-making Tatura for $38.8m. Four years later, when the company had been

transformed and returned to profit, it bought the remaining 30 per cent for $40.8m.

Irvin also believes that consolidation is imperative if Australia's dairy industry is to be globally competitive.

``I'm not inclined to paint the picture that it's the end of the world for anybody unless this transaction goes ahead,'' he

says.

``But it would be a shame to look back at some stage . . . and say, `Well, there was an opportunity missed'.

``We have to face who we're up against . . . Everybody talks about demand and says, `Oh, we've got a great opportunity

around demand', and that's true. But have no doubt that every other competitor in the world is setting itself up for the

same demand and trying to work out how to be better, how to be more efficient.''

Time will tell whether Bega, and Irvin, prove successful. While the offer documents were mailed to Warrnambool investors

this week, much will depend on whether Murray Goulburn, which owns 17 per cent of the company, accepts. The rival

dairy co-operative is keeping its cards close to its chest.

Sydney-based investment manager Glenn Poswell, the founder of Gannet Capital and a former boss of the Packer family's

Ellerston Capital, is watching closely.

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As a recent appointee to the board of Giant Steps, he knows Irvin personally. And while he says the deal appears

``compelling'', it helps that he understands Irvin's approach to building businesses.

``He leaves nothing to chance,'' Poswell says.

``What he has been able to achieve professionally and socially didn't come by accident. You know that saying; the harder

you work, the luckier you get? He's done that.''

Canadians give local dairy a churn Malcolm Maiden 9 October 2013 The Sydney Morning Herald © 2013 Copyright John Fairfax Holdings Limited. Christmas is coming, and Canadian Dairy group Saputo's $462 million counter-offer for the Warrnambool Cheese & Butter

Factory Company rings all the jingo bells.

A recommended cash bid from a foreigner that trumps a lower local one, from Bega Cheese? Kaching. A bid that targets

one of the remaining Australian-owned operators in an industry that is already dominated by foreign companies? Kaching.

A bid that targets a company that has farmer shareholders? Kaching.

Saputo's offer should create less waves than US group Archer Daniels Midland's $3 billion bid for Graincorp, however.

ADM's offer for Graincorp follows other takeovers that have left foreign groups in a dominant position in Australia's wheat

export industry. It would see ADM take control of Australia's east coast grain export ports, and members of the Nationals

wing of the Coalition government including Warren Truss and Barnaby Joyce oppose it. Treasurer Joe Hockey extended the

deadline for delivering a foreign investment decision on the bid last Friday, citing its "size and complexity".

Saputo's offer for Warrnambool is about 15 per cent as big as ADM's offer for Graincorp. It doesn't threaten to radically

change the shape of a dairy industry that already counts groups including Kirin, of Japan, and Fonterra, of New Zealand, as

major players.

It also doesn't raise any obvious issues for Australia's competition regulator, the ACCC. Warrnambool's competitors do

have competitive concerns, however, and they may shape the takeover battle.

Saputo listed in Canada in 1997 after riding the pizza boom, and founder Lino Saputo, his son and current chief executive

Lino jnr and the family retained control as it completed 22 acquisitions in Canada, the United States and Argentina worth a

total of $C4.2 billion ($A4.3 billion).

The first contact with Warrnambool occurred just over a decade ago, and Saputo went close to bidding in 2009 when the

Murray Goulburn dairy co-operative was circling. Discussions were reactivated after Bega lobbed its bid in mid-September,

and Lino jnr flew to Australia this week to win Warrnambool's support.

The Canadian group's market capitalisation of $C9.6 billion dwarfs Bega's market capitalisation of $A533 million, and it is

offering $7 cash a share or $386 million for Warrnambool, about 80¢ a share more than the current composite value of

Bega's initial share and cash offer. Taking debt into account, it is valuing the Australian company at $462 million, and

Warrnambool's board has agreed not to actively shop for a higher bid. If it gets one and embraces it, a break fee of about

$3.9 million is payable.

The Australian company is one of several potential buyers of milk produced by dairy farms in western Victoria, alongside

groups including Bega, Fonterra and Murray Goulburn, and is only a minor player in the retail milk market, where the

controversy over milk pricing in supermarkets has been raging.

About two-thirds of its production is solid milk products for the export market including cheese and milk powder. That is

one of its attractions to Saputo, which is currently selling cheese and other milk products into Asia from its plants in

Argentina.

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The fact that Warrnambool is one of several milk buyers in its region combines with its export focus to make it an unlikely

target of ACCC attention. The ACCC will in fact probably see the arrival of the Canadian giant as a plus for competition in

this market.

Warrnambool's competitive potential under Saputo's wing could be an obstacle, however, because Saputo's bid is

conditional on it getting at least 50.1 per cent of Warrnambool, and Bega and Murray Goulburn are both major

shareholders, with stakes of 18.3 per cent and 17.2 per cent respectively.

Bega could raise its offer, but Warrnambool is becoming expensive. It earned only $25.5 million before interest, tax,

depreciation and amortisation (EBITDA) in the year to June. EBITDA is predicted to bounce to between $47 million and $52

million this financial year, but on that basis Saputo is still valuing Warrnambool at a solid 8.9 to 9.8 times EBITDA.

If, on the other hand, Bega holds on to its stake in Warrnambool and Murray Goulburn also hangs in, almost 36 per cent of

Warrnambool's shares will be locked up.

Saputo would need to buy three-quarters of the remaining shares to get past 50 per cent and trigger its minimum

acceptance condition. That is possible, but only just - and the task could become impossible if a third dairy group, Fonterra,

say, also independently decided to buy in. The battle may have a way to run.

Warrnambool bid tests reforms Tony Boyd 19 October 2013 The Australian Financial Review Copyright 2013. Fairfax Media Management Pty Limited. Chanticleer

A former South Australian barrister who now heads the Competition Tribunal has suddenly taken centre stage as the battle

for control of the Warrnambool Cheese and Butter Factory heats up with a knockout bid from Murray Goulburn Co-

operative.

Judge John Mansfield, president of the tribunal, is being drawn into the bidding war because Murray Goulburn is seeking a

public merger authorisation of its $420 million bid.

It is the first time since legislation was passed in 2007 that a bidder has decided to seek approval for its bid using the public

merger authorisation process. This law removes the decision-making power on a takeover from the Australian Competition

and Consumer Commission.

The move clearly signals that Murray Goulburn is worried that an informal clearance would run up against anti-competition

issues.

Murray Goulbourn is aware that its bid would lessen competition because of statements made by the ACCC in 2010 when a

previous bid was on the table.

At that time the regulator said it had concerns there would be lessening of competition in the bulk supply of raw milk in

south-east Australia, and it was concerned about the supply of bulk cream to food manufacturers in Victoria and South

Australia if Murray Goulbourn grabbed control of Warrnambool.

Murray Goulburn withdrew its offer in 2010 before the ACCC had made a ruling.

Murray Goulburn managing director Gary Helou says the public authorisation option means arguments in relation to the

national interest can be put forward and examined publicly. Helou says the merger would create a global champion. The

company believes that having 40 per cent of the Australian milk market under one roof would enhance exports.

Dairy co-operatives have a long history of success in global export markets. Four of the top eight milk suppliers in the world

are co-operatives. The two largest are Fonterra in New Zealand and American Dairy Farmers.

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Murray Goulburn will argue that the creation of a global-scale player will provide an opportunity for Australian dairy

farmers to capture a much larger share of Asian demand.

A comparison of Australia's dairy performance with that of New Zealand is embarrassing for Australia. Mind you, Australia

suffers from not having a free trade agreement with China. New Zealand pays a lower tariff for its milk exports to China. If

Australia were to match New Zealand's performance in terms of dairy growth over the next 17 years, it would capture an

export prize of $65 billion.

Murray Goulburn will pitch the merits of its bid directly to the dairy farmers who own shares in Warrnambool and supply it

with milk. Farmers and their friends and families will play a critical role in the outcome of the offer because they are

estimated to own between 30 and 40 per cent of Warrnambool.

The other competing offers for Warrnambool are from Bega Cheese and Montreal-based cheese giant Saputo. It is

noteworthy that Saputo will face the same pressure as Murray Goulburn to prove its offer is in the national interest.

The only difference is that Saputo must convince the Foreign Investment Review Board, while Murray Goulburn must

convince Judge Mansfield.

The decision by Murray Goulburn to choose a public merger authorisation by the Competition Tribunal does not

completely exclude the ACCC. It will examine the detriments and benefits of a merger and provide its assessment to the

tribunal. It will be entitled to call witnesses in favour of its case.

On Friday, the target company advised shareholders not to take action while its board considered the offer.

If Australia Post is ever floated on the sharemarket it will need to deal with a fundamental problem plaguing its business:

the accelerating losses from its regulated postal service.

Privatisation of Australia Post has been talked about among bankers and consultants for years but the chatter has become

louder since the overwhelming success the British government has had in selling the Royal Mail.

However, Treasurer Joe Hockey would have to weigh up the benefits of getting $4 billion in cash from selling the business

and losing an annual dividend of about $250 million a year. The business is probably worth more to Hockey as a

government-owned entity.

The company's profit from retail services rose 13 per cent in the year to June to $201 million. The profit from the parcel

and express services business rose 29 per cent to $355 million. But losses from the mail delivery business rose 60 per cent

from $117 million to $187 million.

To a certain extent a public float is irrelevant, as the business is being run as if it were a public company. Chief executive

Ahmed Fahour and his executives are being paid in line with executives at companies listed on the stock exchange.

Fahour's remuneration rose 66 per cent in the year to June to $4.75 million. That included back pay for unpaid super and

deferred bonus payments. However, the optics of this are not good. The latest Australia Post enterprise agreement

includes a 0.5 per cent pay rise in 2013, 2.5 per cent in 2014, 2015 and 2016.

Market boosts Bega takeover offer value AAP 23 October 2013 Hobart Mercury © 2013 News Limited. All rights reserved BEGA Cheese says the share market is increasing the value of its takeover offer for Warrnambool Cheese and Butter

Factory every day.

Bega and two other companies Canadian dairy giant Saputo and Australia's Murray Goulburn are vying to take control of

Warrnambool.

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Bega's offer of $2 cash plus 1.2 Bega shares for every Warrnambool share is the lowest of the three, valuing Warrnambool

at $323 million when the offer was made on September 12.

Saputo's $7 cash offer for each Warrnambool share values the target at $392 million, and Murray Goulburn's $7.50 a share

offer values Warrnambool at $420 million.

But Bega chairman Barry Irvin says the rising value of Bega's shares means its offer by yesterday was worth $385 million,

almost level with the Saputo offer.

Bega shares were valued at $3.15 when it made its offer for Warrnambool. Yesterday, they closed 8c lower at $4.

HARD WORD ON SOFT COMMODITIES Tony Featherstone 24 October 2013 BRW Copyright 2013.Fairfax Media Management Pty Limited.

There is nothing like a hostile takeover to sharpen market focus. The contest between Bega Cheese and Canadian dairy

giant Saputo to acquire Warrnambool Cheese and Butter Factory Company Holdings has sparked greater interest in

agribusiness stocks.

It also reinforced two themes. First, that long-term investors should position portfolios to capitalise on powerful global

trends like agribusiness and emerging markets growth. Second, they have to work hard to choose the right investment

exposure.

Some of Australia's most promising industries have surprisingly low representation on the ASX. Take international

education, for example. Deloitte this month nominated higher education as one of five

"super-growth" sectors that could add $250 billion to national income over two decades. (The other sectors were gas,

wealth management, tourism and agribusiness.) There aren't many investment-grade options, beyond Navitas and SEEK, to

gain exposure to international education; the likely float of Vocation, a roll-up of education and training businesses, is

badly needed, as are other listings of larger education-related businesses.

Agribusiness has its own challenges. The ASX food, beverages and tobacco sector shows 33 stocks, including Coca-Cola

Amatil. A handful of agriculture-dependent stocks are scattered in retail and other sectors, but the choice of larger,

investment-grade agribusiness stocks is relatively limited. The majority are small or micro-capitalisation stocks.

That is surprising given the potential of Australian agribusiness in Asia. The number of middle-class consumers in Asia-

Pacific (households with daily spending of $US10 to $100) is estimated to grow from about 0.5 billion in 2009 to 3.2 billion

in 2030, according to the federal government's Australia in the Asian Century white paper released last year.

There could be billions of people on Australia's doorstep seeking more protein and dairy as incomes rise. Expect several

agribusiness floats, reverse takeovers or compliance listings in the next few years, and greater consolidation of existing

stocks.

Take a bite without getting bitten

How should self-managed super fund (SMSF) trustees expose portfolios to an Asia-led agribusiness boom? Most agriculture

stocks look fully valued or overvalued after recent share price gains, and portfolio investors should never buy stocks on the

basis of a potential takeover.

Another option is exchange-traded products (ETPs) over soft commodities. Their main benefit is the ability to gain pure

exposure to a commodity and eliminate equity and market risks, as well as currency risks for ETPs that are hedged against

currency moves.

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Gold is a good example. Investors seeking exposure to the precious metal have been better off buying a commodity ETP

than investing in gold explorers and producers, which collectively have a knack for destroying shareholder wealth and tend

to get caught up in broader sharemarket risks.

Low annual management costs – usually 50 basis points or less each year – for ETPs is another attraction for SMSF

investors who understand the benefits of low transaction costs on long-term returns. The downside is that commodity

ETPs can be complex. So-called synthetic and structured products require extra care because they use derivatives and

introduce the risk of a counter-party failing to meet their obligations, thus rendering the derivatives contract worthless.

Commodity ETPs suit experienced investors and traders.

Soft commodities are a difficult and often volatile asset class because of weather and natural catastrophes. Buying

commodity ETPs that are unhedged for currencies adds another layer of complexity if the Australian dollar heads back to

parity with the US dollar and beyond. Risks aside, there is an argument for long-term investors to have more soft-

commodity exposure as rising Asian demand for wheat, corn, dairy and sugar drives prices higher. The key is being able to

withstand short-term volatility, to position for the long-term trend of higher crop demand. Different ways to fill a basket

The BetaShares Agriculture currency-hedged (synthetic) ETP tracks the performance of the four most significant

commodities – corn, wheat, soybeans and sugar – and is hedged for movements in the Australian-US dollar exchange rate.

Exposure to a basket of commodities offers more diversification than investing in small agribusiness stocks dependent on a

single commodity. The BetaShares ETP was down almost 21 per cent over one year to September 2013.

Over five years, the annualised gain in the underlying index is less than 1 per cent. The index's poor return is a turnoff, but

prospective investors might see that performance weakness as a lower entry point for long-term soft-commodity

exposure.

Another option is the ETF Securities Agriculture collaterised structured product. It tracks the Dow Jones-UBS Agriculture

Subindex, which is priced off commodity futures contracts for coffee, cotton, corn, soybean, soybean oil, sugar and wheat.

It is unhedged for currency movements. This ETP was down 9 per cent over the year to October 9, 2013 and its underlying

index can be volatile. Again, this is not a product for conservative investors or those uncomfortable investing in indices

based on futures prices, and with currency risk.

The RBS RICI Enhanced Agriculture Index provides exposure to 20 agriculture commodities and has a mechanism that

accounts for liquidity, seasonality and futures pricing, to improve the ETP's risk-adjusted return.

Simply put, the RBS ETP uses a rules-based approach to choose the best futures contracts over agriculture commodities to

roll into, which has been shown to outperform comparable commodity indices over time.

These types of enhanced indices, or "smart beta" products – where ETPs use a certain methodology to engineer a return

greater than their underlying index – are popular overseas.

Soft-commodity ETPs are not for the risk-averse. Nor are small agriculture stocks. Investors who were slaughtered by

agricultural companies that promoted managed investment schemes five years ago, or bought small agribusiness stocks

that were thumped by sharp commodity falls, know the investment dangers all too well.

Canadians add more jam to butter bid SUE NEALES, RURAL REPORTER 25 October 2013 The Australian © 2013 News Limited. All rights reserved. WCB shareholders flocked into town to discuss the battle

THE fascinating battle to win control of Victorian dairy processor Warrnambool Cheese & Butter Factory Company has

taken yet another twist.

11

Canadian dairy giant Saputo is today expected to boost its offer by $1 a share, taking its bid to $8 a share. It is a bold move

that values the venerable 125-year-old company at $448 million, trumping the counter $7.50-a-share offer from dominant

Victorian co-operative processor Murray Goulburn last week, which bettered Saputo's earlier bid by 50c a share.

Murray Goulburn's play, which the board yesterday said it was still evaluating, valued WCB at $7.50 for each of its 56

million shares, and the company at $430m.

Bega Cheese, the Australian dairy company that last month launched the first hostile takeover bid for the western Victorian

processor with a bid of $319m in a complex shares and cash offer to shareholders, has not yet responded to the latest

bidding frenzy.

It is expected to receive approval from the Australian Competition & Consumer Commission next week for its unfriendly

takeover, opening the way for what it claims could be a rapid purchase of WCB -- albeit at a higher price than yet flagged.

The competing Saputo and Murray Goulburn bids have yet to be submitted for regulatory approvals from the ACCC and, in

the case of Saputo, Foreign Investment Review Board approval is needed too.

Bega Cheese already controls 18 per cent of WCB's 56 million shares, while Murray Goulburn currently holds a 17 per cent

stake in the company.

Another 30-40 per cent of the company's shares are owned by Warrnambool locals and the 3000 dairy farmers in south-

western Victoria who supply WCB with its 890 million litres of milk annually.

At yesterday's annual meeting of Warrnambool Cheese & Butter held in the coastal town's City Memorial Bowls club, it was

standing room only as more than 300 shareholders turned up to discuss the fate of their local milk and dairy factory.

At the dairy processor's previous annual meeting last year, its shares were languishing at around the $2.50 mark and just a

handful of its dairy farmer-shareholders turned up.

Yesterday, as WCB shares hovered around the $8.15 mark on the ASX and dairy farmers flocked to hear more about their

options, the company's board tangentially discussed the merits of the three rival offers for their treasured local company.

Chairman Terry Richardson told the meeting it could be several weeks before his board made a final recommendation on

which offer to accept.

Mr Richardson said the current highest bidder, Murray Goulburn, was still to supply adequate detail to allow its offer of

$7.50 a share, or $420m, to be evaluated for shareholder benefit.

Mr Richardson said the earlier unanimous recommendation by WCB's directors to accept the $392m offer from Canadian

dairy giant Saputo -- rather than the unfriendly $319m takeover bid by Bega Cheese – had been overtaken by the late

arrival of fellow Victorian dairy co-operative Murray Goulburn into the bidding war last week.

``The board is still considering Murray Goulburn's takeover proposal and has sought further details,'' Mr Richardson told

eager shareholders.

``The Murray Goulburn offer is above the fair value range (set by WCB advisers KPMG) but is subject to uncertain

competition conditions and (they) haven't expressed the same intentions in regard to suppliers, employees, future

investment and direction that Saputo has done,'' Mr Richardson added.

``This process has some time to run and there may still be further developments; but at this stage there is no further

information to provide about these offers.''

Mark Rea, grandson of one of the original founders of the butter factory, as it has always been called locally, holds 100,000

WCB shares, despite having passed his dairy farm with its 700 milking cows close by the Allansford factory on to his son last

year.

12

He is uncertain about which offer he prefers -- the original $319m bid from Bega Cheese, the later board-preferred bid

from Canadian giant Saputo that values the company at $392m, or Victoria's Murray Goulburn cooperative trumping effort

at $7.50 a share, valuing WCB at $420m.

``In my heart I would prefer the Warrnambool Cheese & Butter factory to stay as it has since my grandfather's time, and in

the 65 years I have held shares; but since we were listed I know it's got to go,'' Mr Rea said.

``I'm not in favour of Bega Cheese -- they are a bit small -- but between the other two bids it is hard to say because they are

both good companies. Normally I'd say I would prefer WCB to stay Australian, which would mean preferring Murray

Goulburn, but it seems that the Canadians are a really good company.''

The AGM heard the 2012-13 financial year had been difficult for WCB, with its export focus hit by low global prices for

dairy goods and the high dollar.

At home, a dry season affected the availability and production of milk, with dairy farmers hit by high autumn and winter

feed prices and depressed farmgate payments from WCB.

Support for Saputo will bolster dairy industry 29 October 2013 The Australian Financial Review Copyright 2013. Fairfax Media Management Pty Limited. There has been a lot of commentary about the battle between three suitors for the Warrnambool Cheese and Butter

Factory being a critical point for the Australian dairy industry. The WCB board unanimously supports the bid by Canadian

group Saputo.

I do business with the new management of one of the other suitors, Murray Gouldburn (MG). A stronger industry will be

created by long-term milk prices that have a margin for profit and re-investment by farmers. A strong MG as the farmer

owned co-op, and competition, are the ingredients for maximising price.

Will MG be stronger by spending more than $400 million buying WCB? Might it be stronger by investing in making the

existing operation more efficient?

This year, it would appear as though MG does not stand a chance of matching the New Zealand milk price.

In the Australian dairy industry we still have the opportunity to control our destiny, whereas many other production

systems are controlled by multinationals.

If we need time to make this decision, we probably need to support the other takeover contestant, Bega Cheese. If we, as

farmers, want genuine competition, then we need strong players, so Saputo might be the one to back.

Maybe this WCB battle has come a few years too early for MG – they should take their profit and make it very competitive

for milk. The industry needs capital and the biggest capital crisis is on-farm, not in processing – there is $1 of processing

capital for every $5 of farm capital and so far the bids for WCB are less than $0.70 per litre of capital.

Rod Banks CowBank South Yarra, Vic

Watchdog gives Bega takeover green light AAP 1 November 2013 Hobart Mercury © 2013 News Limited. All rights reserved BEGA Cheese's takeover play for Warrnambool Cheese and Butter Factory has been given a boost, with the competition

regulator approving the bid.

13

Australian Competition and Consumer Commission chairman Rod Sims said there was limited overlap between Bega and

Warrnambool in relation to the acquisition of raw milk in the dairy region of southwest Victoria and areas of northern

Victoria.

Bega has offered $2 plus 1.2 of its own shares for each Warrnambool share.

Warrnambool's board has recommended to shareholders a higher bid by Canada's Saputo, which is offering $8 per

Warrnambool share, valuing the company at $449 million.

The Murray-Goulburn co-operative is also targeting Warrnambool.

Earlier this week, Japanese dairy and beverage company Lion bought a 9.99 per cent stake in Warrnambool, with which it

has a working relationship.

Bega weighs up buyout bid 8 November 2013 The Courier-Mail © 2013 News Limited. All rights reserved. BEGA Cheese is yet to decide whether it will lift its buyout bid for Warrnambool Cheese and Butter Factory, which is the

target of a three-way takeover battle.

The Bega Cheese board met yesterday to discuss its offer of $2 cash plus 1.2 Bega shares for each Warrnambool Cheese

share.

That offer currently values Warrnambool Cheese at about $7.80 a share or $437 million.

In a statement after the meeting, Bega Cheese directors said they had “not yet made a decision” on lifting the offer.

Warrnambool Cheese directors have already recommended investors support Canadian dairy giant Saputo’s offer of $8 a

share, while dairy co-operative Murray Goulburn is bidding $7.50 a share.

Japan’s Kirin, through subsidiary Lion, has bought a stake in Warrnambool Cheese, while another dairy giant, New

Zealand’s Fonterra, has bought a stake in Bega.Kirin and Fonterra have indicated they do not intend to make takeover bids

for the Australian companies but want a “seat at the table” as the sector consolidates.

Hockey: national or Nationals issue? Malcolm Maiden 13 November 2013 The Sydney Morning Herald © 2013 Copyright John Fairfax Holdings Limited. Treasurer Joe Hockey's big tick for Saputo of Canada's $449 million takeover offer for Warrnambool Cheese & Butter

Factory Company improves the odds on him also approving Archer Daniels Midland's $3.4 billion bid for GrainCorp, but the

politics of the two deals are different.

Saputo's bid was approved unconditionally, Hockey said on Tuesday, adding: "Australia is open for business and we

welcome foreign investment when it is not contrary to the national interest."

The question is whether in the case of GrainCorp, Hockey's statement potentially contains one extra letter, the letter S;

that as far as GrainCorp is concerned, Australia is open for business and welcomes foreign investment when it is not

contrary to the Nationals' interest.

There's been some pro forma hand-wringing about Warrnambool, but nothing to match GrainCorp. Lobbying from ADM

and its advisers has been persistent, and Nationals including Warren Truss and Barnaby Joyce have been vocal opponents.

Hockey has extended the deadline for a decision as far as he can, to December 17.

14

ADM is a powerful multinational that has not always behaved. It paid record fines over lysine and citric acid price-fixing in

the '90s, for example. The GrainCorp takeover would also extend foreign ownership of an industry that could have

produced a multinational of our own.

That opportunity is probably already lost, however, and it is difficult to see anything other than internal Coalition politics

getting in the way of ADM's GrainCorp takeover if the Saputo decision is a guide. GrainCorp is a bigger deal, but if the

government unconditionally welcomes foreign investment in the dairy industry, it should also welcome foreign investment

in the grain industry.

Neither takeover would set a foreign ownership precedent. Japan's Kirin, New Zealand's Fonterra, France's Parmalat,

Lactalis group and Kraft of the US are already entrenched in the local dairy industry, and overseas groups including Cargill

and Glencore are active in Australia's wheat industry after a series of foreign takeovers.

Neither bid would revolutionise the competitive landscape. Competition issues are more often raised by local mergers, and

are in fact raised by one of two local counter-bids for Warrnambool.

ADM's offer has not flushed out local counter offers, which aids its bid for foreign investment approval. Saputo's $8 a share

bid for Warrnambool, on the other hand, is being recommended by Warrnambool over two competing local offers: a $7.50

a share cash offer from the Murray Goulburn Co-operative, which also owns about 17 per cent of Warrnambool's shares,

and a share and cash bid, valued at about $7.23 per Warrnambool share currently, from Bega Cheese, which is on

Warrnambool's register with a shareholding of about 18 per cent.

Murray Goulburn has been styling itself as a potential local national champion in a business dominated by foreigners.

The Australian Competition and Consumer Commission flagged its opposition to a takeover of Warrnambool by Murray

Goulburn in 2010 because they compete to buy milk at the farm gate in western Victoria and south-east South Australia,

and in its second attempt Murray Goulburn has gone to the Australian Competition Tribunal, where it can argue that the

takeover would have national interest benefits that outweigh ACCC concerns.

The tribunal will not make a decision for months, however, and Hockey's quick, positive decision on Saputo's bid implicitly

rejects arguments Murray Goulburn made that the Saputo foreign investment decision should be held up until the

competition tribunal has ruled on Murray Goulburn.

It is therefore a setback for Murray Goulburn: in its Saputo endorsement, Warrnambool notes Murray Goulburn's

regulatory hurdle. Murray Goulburn is hanging in, however, and urging Warrnambool shareholders not to rush their

decision. It knows the battle may run long enough to keep it in the game.

Saputo's bid is, for example, conditional on it getting more than 50 per cent, a tough target with Murray Goulburn and

Bega holding a combined 35 per cent. A third player, Kirin's Lion group, has also bought a 10 per cent stake to protect a

cheese supply deal it has with Warrnambool.

Murray Goulburn and Bega can also raise their offers, and a Bega-Warrnambool merger does not raise serious competition

issues.

Hockey's decision has sent a signal, however. He could have extracted an undertaking from Saputo to keep the Australian

company's head office in Warrnambool, or Victoria. He could have made Saputo promise to sell cheese into Asia from

Australia ahead of its current export source, Argentina. He could have delayed his decision, as Murray Goulburn wanted.

Instead, he cleared Saputo unconditionally. Any unexplained decision on GrainCorp that is less open - one that cuts

GrainCorp's eastern seaboard ports out, for example - will be a sign of the Nationals' influence.

Big cheese bidding battle may be bound for stalemate Jemima Whyte 16 November 2013 The Australian Financial Review Copyright 2013. Fairfax Media Management Pty Limited.

15

Saputo's decision to increase its offer for Warrnambool Cheese & Butter Factory Company is likely to mark the end of the

fast-paced bidding war that has played out between the Canadian group and local dairy players Bega and Murray

Goulburn.

But it's not quite the end of the battle.

The revised offer – which Warrnambool revealed was on its way when it entered a trading halt on Friday morning – will

mark the seventh offer the Victorian-based dairy group has received since its rival Bega kickstarted the auction in early

September.

This past week, both Bega (which owns 18 per cent) and Murray Goulburn (owner of 17.7 per cent) have done a good job

of baiting the trap for Saputo.

Murray Goulburn raised its offer to $9 a share on Wednesday, and that alone probably wouldn't have forced Saputo to

move, given the regulatory and time uncertainty that still hangs over that offer.

Murray Goulburn still needs clearance from the Australian Competition Tribunal, which could take up to six months.

Bega's decision to increase its cash and scrip offer to about $8.80 a share upped the stakes. Crucially, Bega declared its

unconditional offer final and open for acceptances on Thursday.

This meant that Saputo (which received FIRB approval this week) faced the prospect of an even harder battle to reach 50.1

per cent if a few shares went Bega's way.

Three strategic shareholders have about 45 per cent of the register, while Japan's Kirin, through its subsidiary Lion, holds

9.9 per cent.

And while the highest offer would usually win, the implications of this bid for the dairy farmers – who are estimated to own

about 30 per cent of the register – are much greater than a share profit.

Broadly, many are concerned about how a merger will affect the milk price and change the face of the dairy industry. Some

farmer shareholders already sell their milk to Bega or Murray Goulburn, so may have an automatic preference there.

There's very little consensus among the farmer shareholders.

Some say they would prefer local bidders to an offshore player; another take is that overseas ownership would preserve

competition, providing a better outcome.

And – just to add another dynamic into the process – there's a long-simmering animosity between WCB and Murray

Goulburn that dates back even further than Murray Goulburn's 2010 offer for the WCB.

Lion's 10 per cent of WCB makes it an important player in any outcome.

With so many different stakeholders and such a large percentage of strategic shareholdings, there's a very real possibility

that this frenzy could eventually end in a stalemate.

China's State Grid Corporation of Australia's $7.5 billion acquisition of Singapore Power's Australian assets – which includes

a 19.9 per cent stake in listed utility SP Ausnet – reaches a formal hurdle on Saturday. The deal is one of the year's largest

incomplete M&A transactions, as it is still waiting on Foreign Investment Review Board approval State Grid is waiting on

the green light to buy Singapore Power's Australian assets, including the listed SP AusNet, a major player in Victorian gas

and electricity, and the unlisted Jemena, which was formed out of the sale of Alinta in 2007.

November 16, is technically an important date as both State Grid and Singapore Power have the rights to cancel the deal if

issues are not resolved.

It's an unlikely that either party will terminate the transaction.

But it's a reminder of how long this deal has remained in limbo, clearly not helped by an election and change of

government.

16

Because the deal is between two private entities, there's no technical requirement for it to be disclosed.

But – in the unlikely event they didn't extend the agreement – State Grid would lose its relevant interest in the SP Ausnet

securities.

That would mean a notice would have to be lodged with the ASX by Wednesday, notifying the market it had ceased to have

an interest.But don't hold your breath.Treasurer Joe Hockey very publicly declared this week that, "Australia is open for

business and we welcome foreign investment when it is not contrary to the national interest".

He made those comments after Saputo's bid for WCB was cleared by FIRB. Based on those comments, it's hard to see any

reason that FIRB would not approve the State Grid deal.

But that clear statement was muddied slightly on Friday by reports Prime Minister Tony Abbott will block the ADM-

Graincorp deal – the year's other major outstanding deal.

Abbott's office replied by pointing out the Prime Minister did not have a role in influencing FIRB.

Pacific Equity Partners' Link Market Services is the latest private equity asset to ready for an initial public offering.

As revealed by Street Talk online, PEP has taken the first step in preparing the share registry business for an early 2014 IPO

by seeking $200 million private placement, backed by Macquarie and London-listed Intermediate Capital Group.

Institutions were being offered 50 per cent of Link's private placement on Friday.

Interestingly, PEP is choosing to list only Link and not include US-based American Stock Transfer & Trust Company which it

bought for $1 billion in May 2008. At one point, PEP was been considering ways to finance them together,

This proved too complicated and ultimately unnecessary.

The two assets are held by different PEP funds which makes any type of crossover transaction problematic.

Aside from the sensitivities of muddling funds, the other argument is that AST is better suited to investors with a US and

global focus when it looks at an exit.

Now that Link is on its way to the public markets (albeit with PEP retaining its holding, as it is planning to do with Veda), it

means most of the large PE assets have been dusted off for sale.

Heavy equipment hire company BIS, private hospital operator Healthscope, the old Stella business, Nine Entertainment and

consumer credit bureau Veda are all looking at listing or sales.

There's even speculation Carlyle Group and Seven may restart Coates's process again early next year, after shelving a sale

of the equipment hire company in the first half of this year.

With portfolio management, refinancing and now IPOs almost out of the way, the conversation in PE land is fast turning to

when the funds will start to buy assets.

It's not an easy task, with the S&P/ASX 200 trading on around 15 times earnings - a level that most PE funds would struggle

to make money at.

Before the GFC, it was hard to differentiate private equity funds.

By now, there's becoming a clear pecking order in which funds have been most successful at picking assets, managing the

businesses, refinancing them and selling them.

An offer of cash and confusion JOHN BEVERIDGE, COMMENT 29 November 2013 Daily Telegraph Copyright 2013 News Ltd. All Rights Reserved

17

SHAREHOLDERS in Warrnambool Cheese and Butter Factory are entitled to be both confused and happy at the moment.

There are three real bidders for their company and the offer is breathtaking and double what it was a few short months

ago.

From there on the picture becomes very murky and confusing though as two of the bidders — Bega Cheese and Murray

Goulburn — are now complaining to the Takeovers Panel about the cash bid by Canadian dairy Saputo.

Both want Saputo to be blocked from buying more Warrnambool shares. Several unhappy shareholders who have

contacted me agree with that, given the Saputo offer has effectively changed with the withdrawal of special fully franked

dividends.

One pensioner shareholder told me he accepted an offer for what he thought was $9.56 a share (including the franking

credits of 56c on the $1.31 dividend) and now he will get just $9 from Saputo, and perhaps an extra 20c a share if Saputo

gets past 50 per cent.

“I have dealt with shares for over 40 years and at all times trust and/or a handshake were sufficient for the deal to be

made on behalf of both the seller or buyer — this has not happened in this transaction,’’ he said.

Perhaps increasing his angst, yesterday Murray Goulburn increased its bid to $9.50 a share, claiming it now had a superior

offer and that it wanted to explore the possibility of franked dividends. The catch is it needs Australian Competition

Tribunal clearance, which could take six months.

The Warrnambool board has been firmly in the Saputo camp from the start. Arguably the Warrnambool board has caused

much of the confusion for its own shareholders and should have engaged with all three suitors to ensure the best possible

price and help soak up some time so as many road blocks as possible were removed.

How does it explain to a shareholder that it now recommends they take no action on the Murray Goulburn bid after earlier

urging acceptance of an arguably inferior but unconditional bid from Saputo?

No doubt we will find out when it responds to the Murray Goulburn bid but I wouldn’t be taking odds on them switching

horses.

That confusion is particularly the case for the Bega Cheese bid, the only one with a combination of shares and cash, and

with it potential rollover relief from capital gains tax.

After the referral to the Takeovers Panel and the higher Murray Goulburn bid yesterday, Bega shares rose as high as $4.94

before falling back to $4.74.

At that peak price the Bega bid of 1.5 Bega shares and $2 cash for every Warrnambool share went as high as $9.41 a share,

although as the other bidders have pointed out, Bega’s share price in the future is inherently uncertain.

With no competition barriers to the Bega bid, it seems odd that the Warrnambool board hasn’t at least discussed the

possibility of a combination of franked dividends, Bega shares and cash to produce what could be a very attractive and tax

effective offer.Warrnambool shareholders are in the money no matter what but I am sure they’d like less regulatory and

market confusion around the takeover of their company which hopefully the Takeovers Panel can help to provide.

WCB says MG bid faces difficult hurdles 7 Jan, 2:40 PM AAP Takeover target Warrnambool Cheese and Butter Factory (WCB) says suitor Murray Goulburn is unlikely to overcome hurdles obstructing its bid. Murray Goulburn's offer is subject to no objection by the Australian Competition and Consumer Commission (ACCC) or the

granting of authorisation by the Australian Competition Tribunal.

18

The company has decided not to seek ACCC approval and instead request authorisation from the Competition Tribunal on

the grounds that the net public benefit of its acquisition of WCB would outweigh any likely anti-competitive effects.

"Your directors consider that the outcome of the Competition Tribunal's assessment of the application is uncertain," WCB

said in its target's statement, released on Tuesday, in respect of the Murray Goulburn offer.

WCB pointed to concerns raised by the ACCC when Murray Goulburn proposed to take over WCB in 2010, saying the likely

anti-competitive effects remained broadly similar.

Furthermore, the public benefits asserted by Murray Goulburn were predicated on Murray Goulburn acquiring 100 per

cent of WCB, which WCB said was unlikely.

Therefore, it was uncertain whether Murray Goulburn could satisfy the net public benefit test.

WCB said Murray Goulburn had not indicated why public benefits could not be achieved under different industry

structures, including the status quo or an alternative bidder achieving control of WCB.

Canadian dairy giant Saputo has also made a takeover bid for WCB, which the WCB board favours.

WCB said it was unable to assess whether cost savings that might be made from a combination of WCB and Murray

Goulburn were achievable.

Plus, any achievable cost savings might be offset by the increased debt that Murray Goulburn would incur to fund its offer.

WCB said that even if Murray Goulburn obtained Tribunal authorisation, its offer could only proceed if Murray Goulburn

satisfied a 50 per cent minimum acceptance condition, which would be difficult.

Murray Goulburn has a 17.7 per cent stake in WCB, Bega Cheese has 18.8 per cent, Saputo has 17.9 per cent, and Lion has

about 10 per cent.

Saputo is offering an unconditional $9.00 per Warrnambool share, but that price can increase to as much as $9.60 if Saputo

attains various share thresholds in WCB at and above 50 per cent.

Murray Goulburn's bid of $9.50 is conditional upon it obtaining more than 50 per cent of WCB shares - a condition, WCB

says, that could not be waived without the consent of Murray Goulburn's financiers.

WCB said that if WCB shareholders accepted the final Saputo offer and there was a stalemate - that is, neither Saputo nor

Murray Goulburn acquire a stake in WCB greater than 50 per cent - WCB shareholders would still receive the minimum

$9.00 from Saputo.

Murray Goulburn on Tuesday said it had a compelling case for Competition Tribunal authorisation and urged WCB

shareholders to wait for the outcome of the Tribunal process.

Saputo lifts Warrnambool Cheese stake January 09, 2014 AAP The parties battling for Warrnambool Cheese and Butter (WCB) are still a long way off gaining control of the target, with

the offer of one suitor set to expire on Friday evening, and the other suitor trapped in the regulatory process.

Canadian dairy giant Saputo and Australian dairy co-operative Murray Goulburn remain in the fight for WCB, after Bega

Cheese pulled out in December.

Saputo's offer, which has been declared final, expires at 1900 AEDT on Friday, January 10, unless it is extended, but is

favoured by the WCB board.

Murray Goulburn's offer remains open until March 14, but its proposed acquisition of WCB still requires regulatory

approval, and its offer has been rejected by the WCB board.

19

Saputo on Thursday said its offer had received sufficient acceptances to lift its stake in WCB to 20.14 per cent.

"Saputo is now the largest shareholder in Warrnambool Cheese and Butter, with acceptances continuing to flow in," a

Saputo spokesperson said.

WCB says MG bid faces tough hurdles AAP 8 January 2014 Hobart Mercury © 2014 News Limited. All rights reserved TAKEOVER target Warrnambool Cheese and Butter Factory says suitor Murray Goulburn is unlikely to overcome hurdles

obstructing its bid.

Murray Goulburn's offer is subject to no objection by the Australian Competition and Consumer Commission or the

granting of authorisation by the Australian Competition Tribunal.

The company has decided not to seek ACCC approval and instead request authorisation from the Competition Tribunal on

the grounds that the net public benefit of its acquisition of WCB would outweigh any likely anti-competitive effects.

Your directors consider that the outcome of the Competition Tribunal's assessment of the application is uncertain,'' WCB

said in its target's statement in respect of the Murray Goulburn offer.

WCB pointed to concerns raised by the ACCC when Murray Goulburn proposed to take over WCB in 2010, saying the likely

anti-competitive effects remained similar.

Bega Cheese clears debt, wins 'dairy war' JANE WARDELL Last updated 09:35 17/01/2014 Reuters Dairy Bega Cheese will walk off with a pile of cash and a kingmaker role in Australia's "dairy wars" after virtually handing control

of the country's oldest milk and cheese producer to a Canadian suitor.

Bega agreed on Thursday to sell its 18.8 per cent stake in takeover target Warrnambool Cheese and Butter Factory

Holdings to Saputo.

That effectively ends a takeover battle Bega itself started last year but abandoned as bids spiralled.

With the dust about to settle on one Australia's most intense bidding wars in years, Bega now has a A$70 million ($74m)

windfall, wiping out debt and freeing up funds for new products or acquisitions.

Its position of strength, along with company statutes that would deter bidders, also means it hopes to stay independent

even if international suitors call in what has become one of Asia's hottest food and drink sectors.

The intensity of the struggle for Warrnambool - nine bids or counter-bids since last September - reflects huge interest in

Australia's agriculture assets amid surging demand from increasingly affluent southeast Asia for both high-tech milk

extracts and traditional dairy products.

"Some might debate who actually got first prize," Bega chairman Barry Irvin told Reuters in a telephone interview.

Irvin was speaking after Bega said it would sell its shares in what has become the world's most expensive dairy company on

a price-to-earnings basis, according to Thomson Reuters data.

20

"Turning a A$30m investment into A$100m of value is obviously not without its comforts," Irvin said, referring to the surge

in Warrnambool's shares since Bega's first offer.

With sales exceeding A$1 billion ($1.1b) last year, Bega is the largest cheese-cutting and packaging company in Australasia.

Warrnambool stock rose amid counterbids from both Saputo and fellow Australian dairy producer Murray Goulburn Co-

operative. With 45.2 per cent of Warrnambool already in its hands, Saputo's anticipated winning offer is likely to eventually

value Warrnambool at a sizeable A$549m.

Irvin said Bega's decision to pull out of the race in late December as bid prices spiked was taken with a cool head - as was

the decision to hold its stake until Saputo sweetened its offer.

"We remained disciplined and didn't allow ourselves to be distracted by the potential value that was being created by the

bidding process," he said.

The bidding has hoisted Warrnambool's stock to the point where it now trades at 38.2 times its 12 months trailing

earnings, according to Thomson Reuters data.

'RIDICULOUS PRICE'

The shares closed at A$9.40 ($10) on Thursday, up 1.3 per cent and close to the maximum Saputo has said it will pay if it

receives at least 90 per cent acceptance rate for its offer.

"The price that was paid, on an earnings basis, looks ridiculous," said Chris Kimber, managing director at Kimber Capital.

Mark Topy, a senior industrial analyst at Canaccord Genuity Wealth Management, said Bega had played the battle well.

"The price Saputo paid for Warrnambool is very high and we wait to see how they are going to justify that price," Topy

said.

With plentiful milk resources and the technology to make advanced health-promoting products from them, Australia's

dairy businesses remain in demand for companies keen to serve Asia's growing appetite.

Earlier this week, China's Bright Food (Group) said it had agreed to buy Australian cheese and yoghurt producer Mundella

Foods.

The small, privately-held company specialises in probiotic yoghurt drinks and began exporting to Asia in 2010.

Bega is also branching out into high-tech areas.

Along with cheddar and mozzarella cheese, Bega makes whey protein concentrate - and the same milk extracts called

neutraceuticals that made Warrnambool a hot target. It exports to 40 countries.

"It's in that high-value area where we are seeing demand and where we are seeing opportunities," Irvin said, adding that

business development and infrastructure rationalisation were also potential areas of investment focus.

TAKEOVER TARGET?

Named for the small rural town in which it is based in Victoria state - its company slogan is "Real Town. Real Cheese." -

Bega itself could be viewed as a takeover target, Irvin acknowledged. Its stock has surged 47 per cent since mid-September,

closing on Thursday at A$4.62.

Some analysts have suggested that Saputo could move to consolidate its position in Australia, or that New Zealand giant

Fonterra may step in.

But Bega is dealing from a position of strength: Irvin said the company is not for sale, stressing its corporate statutes

contain hurdles to a hostile takeover.

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Bega statutes currently limit any single shareholder to a maximum 10 per cent stake. If a takeover is offered at a premium

to Bega's share price, shareholders can vote to change the statutes - but the vote needs 75 per cent approval to pass.

Saputo declined to comment on Bega's share sale.

Murray Goulburn, which with a 17.7 per cent stake has little hope of reaching the 50.1 per cent needed to make its offer

unconditional, said it would "assess the ramifications" on both its bid and its shareholding.

Japanese beverage giant Kirin Holdings is expected to retain its 10 per cent stake to protect its distribution agreement with

Warrnambool - particularly as Australia's "dairy wars" may not be over.

Saputo win restores dairy as big cheese Tony Boyd 17 January 2014 The Australian Financial Review Copyright 2014. Fairfax Media Management Pty Limited. Chanticleer

Australia's long-neglected and somewhat stagnant dairy industry is about to enjoy a capital investment bonanza following

a successful takeover of Warrnambool Cheese & Butter Factory by Canadian group Saputo.

The takeover has transformed the valuations in the industry and has the potential to change the long-term economics of

the dairy and milk processing sector by injecting about half a billion dollars in capital.

The deal has doubled the valuation of all dairy companies in Australia. That means the big players, including those

companies that failed to take over Warrnambool, will now have a gilt-edged and valuable currency to raise capital or do

more deals.

As is usually the case in Australian agriculture, it took the sudden intervention of a foreign player to make local investors

realise just how valuable milk is as a commodity in both raw and processed form.

It was a similar story with GrainCorp. Foreign grains group Archer Daniels Midland bid $3.4 billion and promised to invest

$500 million in upgrading local infrastructure. But Treasurer Joe Hockey squashed that bid after split advice from the

Foreign Investment Review Board.

Saputo will show the advantage of foreign intervention reasonably quickly. It plans to use Warrnambool as the regional

production centre for its attack on the Chinese market. It had the guts to pay double what local investors were willing to

pay on the premise that global demand for milk products would outstrip supply within three years because of demand

from China.

Saputo will be pumping more than $500 million into the dairy industry including about $100 million each to Bega Cheese

and Murray Goulburn in return for their strategic stakes in the company.

Bega, which owned 18.8 per cent, accepted the offer on Thursday and Murray Goulburn, which owns 17.7 per cent, is likely

to accept in a few days. Once Saputo has more than 50 per cent of the target, its offer will automatically extend for two

weeks.

The market clearly believes Saputo will win more than 75 per cent of the target because at that price the Canadians will

offer $9.40 a share. Warrnambool stock closed on Thursday at $9.40.

If Saputo gets control of 90 per cent of the company, it will pay $9.60 a share.But there is no guarantee that Japanese

group Kirin, which owns 9.9 per cent of Warrnambool through its Australian subsidiary Lion, will accept the bid.

If it does, it will pick up $55 million from Saputo and make a profit of about $11 million. Those numbers are peanuts in the

context of Kirin's revenue and balance sheet.

22

In other words, the Japanese could hold out for some sort of financial benefit such as long-term contracts with Saputo.

Bega and Murray Goulburn will each make profits of $70 million on their shareholdings in Warrnambool.

Bega and Murray Goulburn are expected to use the cash from Saputo to crank up their investment in the sector. They want

to enhance their export offerings and take advantage of rising demand in Asia. The incentive to improve their

manufacturing capabilities is clear from the fact that infant formula sells in China for four times the price in Australia.

Also, Saputo will pay about $200 million to local dairy farmers and their families who owned shares in Warrnambool. That

might end up being reinvested in their farms but given the tough times in the industry it will probably end up as retirement

nest eggs.

Hedge funds will pick up the rest of the cash being paid out by Saputo. The hedge funds were very active during the

Warrnambool takeover. Some bought in, sold out along the way, then bought in again.

There were multiple opportunities for profits during the takeover because of the extraordinary increase in the valuation of

the company.

The bidding started in September last year when Bega kicked off the auction with a bid of $5.78 in cash and Bega shares.

Once the auction started, there was no stopping it. There have been nine different bids despite the fact that all the way

through the board of Warrnambool favoured the offers from Saputo.

The takeover of Warrnambool is perfectly timed for Murray Goulburn. It is due to raise capital this year using synthetic

instruments similar to those used by New Zealand dairy co-operative Fonterra. The Kiwis created an innovative way to

access capital markets. They preserved the ownership of the business by dairy farmers while allowing outsiders to enjoy

the benefits of the company's exposure to Chinese demand.

Fonterra is held up as a shining light in world dairy markets. However, the fact that it is a monopoly carries increased risks.

These market concentration risks were highlighted in the past few months when it suffered recalls of its products.

Saputo's entry into the battle for control of Warrnambool was noteworthy because it was up against rival offers from in-

market companies, Bega Cheese and Murray Goulburn. Normally, the in-market bidders have a distinct advantage over

new entrants. They can allegedly pay more because of the ability for cost cutting because of overlapping activities.

These so called synergy benefits were certainly heavily spruiked by Saputo's rivals.

In fact, the synergy benefits were judged so magnificent by rival bidder Murray Goulburn that it formed the basis of its case

before the Australian Competition Tribunal.

Murray Goulburn had previously had a tilt at Warrnambool three years ago only to withdraw when the Australian

Competition and Consumer Commission said it believed a takeover would substantially lessen competition.

Hard heads reckon Murray Goulburn should have taken the ACCC head on instead of by passing them and seeking

Australia's first merger authorisation from the Tribunal.

The ACCC did not respond kindly to the tribunal application. Some observers even opined that it appeared to be fighting to

preserve its relevance when it opposed the national champion arguments put by Murray Goulburn.

It may well be that the Tribunal case will wither on the vine if Murray Goulburn obtains approval from the corporate

regulator to withdraw its takeover offer for Warrnambool.

Murray Goulburn's takeover ambitions may not be dimmed by its defeat in the battle for Warrnambool.

It could go after Bega but that is much more difficult than it first looks. Bega has a limit on ownership of its shares of 10 per

cent for one shareholder.

That shareholder cap can only be changed if the company's constitution is changed which requires a 75 per cent majority

of those voting.

23

Also, it would seem to be the wrong time to be bidding for Bega considering its market capitalisation has risen by $480

million to $700 million in the five months since it launched the bid for Warrnambool.

Even if it does not get bigger by acquisition, Murray Goulburn under chief executive Gary Helou will emerge as a winner. It

is cashed up and well position to take advantage of the transformation of its capital structure.

The Warrnambool takeover is good for Australia because it will introduce an entrepreneurial player to the market in the

shape of Saputo.

This company was founded by Giuseppe Saputo, an Italian who migrated to Canada in 1952. His son, Lino, is chairman and

his grandson Lino jnr is the executive of the company now valued at about $C4.2 billion.

It is ironic that Saputo has managed to expand successfully internationally from a base in Canada. It is one of the most

protected milk markets in the world.

The Warrnambool takeover was a boon for bankers, lawyers and public relations firms.

The roll call of bankers and lawyers is as follows: CIMB and Minter Ellison advised Warrnambool; Lazard and Herbert Smith

Freehills advised Murray Goulburn; Kidder Williams and Addisons Lawyers advised Bega; Rothschild, Rabobank and

Maddocks advised Saputo; Greenhill & Co and King & Wood Mallesons advised Lion and Fonterra was advised by Reunion

Capital Partners.

Canadians grab nation's oldest dairy The West Australian BEN HARVEY The West Australian January 23, 2014, 5:19 am

Canadians grab nation's oldest dairy

Australia's oldest dairy producer yesterday fell under foreign control after Canada's biggest milk processor finally secured

more than half the shares in Warrnambool Cheese & Butter Factory.

Montreal-based Saputo ended a months-long, three-way tussle for Warrnambool after it grabbed 52.7 per cent of the 125-

year-old company.

Warrnambool, which makes Great Ocean Road cheese and Sungold milk, has more than doubled in market value since an

initial bid by Bega Cheese in September triggered a contest with Saputo and Melbourne's Murray Goulburn Cooperative.

The deadline for the full takeover offer, which values Warrnambool at a maximum of $537 million and had been due to

expire yesterday, will be extended by a fortnight.

"Saputo has to find financial gains in Asia to justify a large purchase here as a beachhead acquisition," said Paul Jensz, a

Melbourne-based analyst at PAC Partners.

"It's a stretch from a financial point of view."

Warrnambool yesterday rose 1.2 per cent to close at $9.42.

Saputo has said it will pay up to $9.40 a share should it obtain more than 75 per cent of the company and $9.60 a share it

gets 90 per cent.

Observers believe the Warrnambool buy will give Saputo the export infrastructure and production capacity it needs to

service demand for dairy in Asia.

24

Rabobank has estimated that milk consumption will jump by 27 per cent between 2012 and 2020, to 14 billion litres, in

South-East Asia's six biggest economies.

Saputo emerged as a strong suitor after Bega withdrew its offer last month and agreed to sell its stake to the Canadians.

Mr Jensz said Saputo should seek to secure Murray Goulburn's 17.66 per cent stake and Kirin Holding's 10 per cent interest

in Warrnambool.

Murray Goulburn, Warrnambool's second-biggest shareholder, has offered $9.50 a share in a bid that requires approval

from Australia's competition regulator.

It said it was still considering its options.

Murray Goulburn pulls out of WCB fight (AAP) AAP Thursday, January 23, 2014

The Australian suitor for Warrnambool Cheese and Butter Factory (WCB), dairy co-operative Murray Goulburn, has

surrendered to Canadian rival Saputo.

Murray Goulburn said on Thursday that it would sell its 17.7 stake in WCB to Saputo, which had amassed an interest of

nearly 58 per cent in WCB before Murray Goulburn's announcement.

Murray Goulburn, Saputo and Australia's Bega Cheese were involved in a prolonged three-way tussle for control of WCB.

Bega allowed its bid to lapse in December.

Murray Goulburn said it would seek consent from the Australian Securities and Investments Commission to withdraw its

bid for WCB.

Murray Goulburn has also withdrawn its application to the Australian Competition Tribunal to have its bid for WCB

authorised on the grounds that a takeover of WCB by Murray Goulburn would be of benefit to the public.

Saputo now has more than 75 per cent of WCB shares, so its offer price will increase to $9.40 per WCB share.

Saputo had offered an unconditional $9.00 per WCB share, with the offer price rising if certain share thresholds were met.

The offer price rose to $9.20 when Saputo's stake passed 50.1 per cent, to $9.40 at more than 75 per cent, and will go up

to $9.60 when it passes 90 per cent.

Murray Goulburn managing director Gary Helou said the sale of the WCB stake was an excellent financial outcome for the

dairy co-operative.

It will receive cash proceeds of at least $92.9 million for the sale of its stake to Saputo, and make a gain before tax and

costs of about $51 million.

"These cash proceeds will support our plans to reinvest in our business and to grow market share in Australia and expand

internationally, further assisting us to deliver our goal of increasing the underlying farmgate returns," Mr Helou said in a

statement.

Murray Goulburn felt confident that it had a compelling case to obtain authorisation from the Competition Tribunal, but

after Saputo acquired a controlling interest in WCB the company was obliged to its shareholders to maximise the financial

outcome, he said.

At the time that Bega Cheese initiated the battle for WCB in September 2013, WCB shares were trading at $4.51.

25

"Whilst we are disappointed to have missed out on the opportunity to acquire WCB, we are pleased that our involvement

in the bidding process drove a genuine auction and that all WCB shareholders have benefited as a result, including Murray

Goulburn's 17.7 per cent stake," Mr Helou said.

But Murray Goulburn took a swipe at the long regulatory process that it had to go through, saying Saputo had received

Foreign Investment Review Board (FIRB) approval in a far shorter time frame than the process that Murray Goulburn was

required to follow.

"From the point that Saputo was granted FIRB approval, the Murray Goulburn offer was not capable of being acted on by

WCB shareholders in the same time period," Murray Goulburn said.

"Consequently, Murray Goulburn was not able to compete realistically on a level playing field with a competing

international bidder for WCB."

Murray Goulburn said the Australian dairy industry still had many small players and it was committed to pursuing

consolidation opportunities.

Warrnambool Cheese in Saputo's hands AAP 23 January 2014 Hobart Mercury © 2014 News Limited. All rights reserved CANADIAN dairy giant Saputo has won control of takeover target Warrnambool Cheese and Butter Factory, leaving rival

suitor Murray Goulburn to consider its options.

Saputo yesterday said it now held 52.702 per cent of WCB shares.

Consequently, Saputo has increased its bid from $9.00 for each WCB share to $9.20 in line with its commitment to increase

the offer to that level upon reaching a relevant interest in WCB of greater than 50 per cent.

The Saputo offer can increase further if higher thresholds are met. The offer rises to $9.40 if Saputo attains a stake in WCB

of more than 75 per cent, and to $9.60 at more than 90 per cent.

Saputo said that as a result of its interest increasing to more than 50 per cent and the increase in the offer price happening

within the last seven days of the scheduled close of the offer, the offer period is extended under the Corporations Act.

The offer period is now scheduled to close at 7pm on February 4.

Saputo has been battling with Australian dairy co-operative Murray Goulburn for control of WCB.

Murray Goulburn has a stake of 17.7 per cent in WCB, but its takeover bid is conditional upon it attaining 50.1 per cent of

WCB.

Murray Goulburn's bid also depends on it obtaining regulatory approval.

Murray Goulburn yesterday said it would now ``commercially assess'' the increase in Saputo's offer and the automatic

extension of Saputo's offer period.

Suitor to sell WCB stake to Saputo AAP 24 January 2014 Hobart Mercury © 2014 News Limited. All rights reserved

26

DAIRY co-operative Murray Goulburn has taken a swipe at Australia's regulatory process as it conceded defeat in the battle

for Warrnambool Cheese and Butter Factory to Canadian dairy giant Saputo.

Murray Goulburn said yesterday it would sell its 17.7 stake in WCB to Saputo, pushing Saputo's stake in WCB past 75 per

cent and consequently lifting Saputo's offer price to $9.40 per WCB share.

Murray Goulburn, Saputo and Australia's Bega Cheese were involved in a prolonged three-way tussle for control of WCB.

Bega allowed its bid to lapse in December.

Murray Goulburn was critical of the long regulatory process that it had to go through, saying Saputo had received Foreign

Investment Review Board approval for its bid in a far shorter timeframe than the process that Murray Goulburn was

required to follow.

Dairy bidding war comes to end February 13, 2014, 12:27 pm AAP Saputo has fallen short of taking full ownership of Warrnambool Cheese and Butter Factory.

Canadian dairy giant Saputo has fallen short of taking full ownership of Victoria's Warrnambool Cheese and Butter Factory.

Beverage and food group Lion has refused to sell its 10 per cent stake, and Saputo has closed its takeover offer with an

87.9 per cent interest.

Warrnambool will remain listed on the Australian share market.

Shareholders who sold to Saputo will receive $9.40 a share, not the $9.60 they would have received if the suitor had

surpassed a 90 per cent stake.

Lion bought its stake in Warrnambool in October 2013, and holds cheese supply contracts with the company.

Warrnambool was the target of a prolonged three-way fight for control by Saputo, Australia's Bega Cheese and Murray

Goulburn Co-operative.

Warrnambool shares were down 18 cents, or 1.96 per cent, at $8.97 at 1345 AEDT.