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Dairy Australia - Market News

15 November 2013

Dairy Australia - Fortnightly Update 15 November 2013Dairy Australia - Fortnightly Update 15 November 2013

Most dairy commodity prices were up at last week’s GDT auction, but lower prices for butter and WMP drove the index down by 1.8% overall, recently released Aug. production data illustrates a rapid seasonal ramp-up in New Zealand milk production and Irish milk production is heading for a bumper year.
Dairy Australia - Market News

Global Developments

Most dairy commodity prices were up at last week’s GlobalDairyTrade (GDT) auction (event 103), but lower prices for butter and WMP drove the index down by 1.8% overall. WMP lost 3.7% (averaging US$4,891/t) fairly evenly across the forward curve, while butter prices averaged US$3,529/t (down 7%). By contrast, AMF prices increased 6.9% to US$5,343/t; SMP gained 0.5% (averaging US$4,559/t). US SMP lost some ground, but reduced Fonterra offerings outweighed the northern hemisphere influence. Full results at

Recently released Aug. production data illustrates a rapid seasonal ramp-up in New Zealand milk production (up 9.2% on Aug. 2012); though the rate of growth has slowed through spring, Fonterra’s volumes are up 4.7% in the season to Oct. EU 28 milk intakes remain ahead of 2012, with Aug. data showing a 2.8% increase; US production in Sep. was up on the same month in drought-affected 2012 by 1%.

Irish milk production is heading for a bumper year; with only 18 months of quota constraints remaining, aggressive expansion plans and a favourable season have seen production surge. Some industry figures are anticipating that Irish farmers are likely to face a European Commission super levy bill exceeding 2012’s €16.5 m ($23.9m).

The Australian Front

Warrnambool Cheese & Butter (WCB) entered a trading halt this morning (15 Nov.) pending announcement of a revised takeover offer from Saputo (SAP), after Bega (BGA) and Murray Goulburn (MG) tabled revised offers:

  • BGA’s 14 Nov. offer: 1.5 (up from 1.2) BGA shares + $2 cash/WCB share ($8.87 at close on 13 Nov.).
  • MG’s 13 Nov. offer: $9 (up from $7.50) cash/share (plus special dividends matching SAP’s offer).

BGA and MG announced their revised offers in the wake of

  • Federal Treasurer Joe Hockey announcing on 12 Nov. the Australian Government’s unqualified approval of SAP’s bid, revised upwards to $8 (from $7) cash/share (plus special dividends depending on the level of ownership achieved and shareholder tax circumstances); and
  • WCB’s board recommending shareholders accept SAP’s offer in lieu of ‘a superior’ alternative.

Locally-listed BGA and Toronto-listed SAP have both received regulatory approvals; yet MG still faces its regulatory hurdle. MG has indicated that it expects to have its application through the Australian Competition Tribunal (ACT) submitted by 29 Nov.—with the ACT’s review reportedly expected to take up to 3-6 months.

Satisfaction of minimum ownership thresholds remain as additional major conditions for both MG (>50% interest in WCB) and SAP (>50% interest—potentially waived if SAP achieves a 40% interest); however, later today or on 18 Nov., SAP is expected to remove the condition and lift the monetary value of its offer above MG’s.

Ten weeks since making its initial offer, BGA, with no minimum ownership condition to satisfy, has announced its revised offer is unconditional and that it will not increase the consideration offered. Just as SAP management has done, BGA management and suppliers are expected to meet with WCB suppliers next week.

WCB’s Directors responded to the revised BGA and MG offers by indicating that they were ‘not yet in a position to make a formal response.’

Farmers interviewed by local media during the week have highlighted the desire to see any potential acquirer support long-term industry growth through investment and sustainable, higher farmgate milk prices.

Meanwhile, The Australian Financial Review (13 Nov.) cites MG CEO Gary Helou: the co-op is progressing a review of its capital structure, including possibly ‘raising equity from farmer shareholders or from external shareholders like Fonterra has done;” MG expects to announce the results of the review at its Annual General Meeting in Melbourne on 22 Nov.

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