Murray Goulburn Announces $7.50 Cash Per Share Takeover Offer For Warrnambool Cheese and Butter

21 Oct 2013 --- Murray Goulburn Co-operative Co. Limited (Murray Goulburn) announced that it has made a proposal to acquire all the issued shares in Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) via an off-market takeover offer for $7.50 cash per share (the Offer).

Murray Goulburn’s proposal would create one of the largest Australian owned food and beverage businesses and a globally competitive dairy food company 100% controlled by dairy farmers. With forecast annual revenues in excess of $3.2 billion the acquisition will create a top five Australian food and beverage business. In addition, the combined milk supply of Murray Goulburn and WCB is forecast to be more than four billion litres in financial year 2014, placing the combined business amongst the top 20 global dairy producers.

Murray Goulburn Chairman, Philip Tracy, said: “This is an historic opportunity for Murray Goulburn and WCB suppliers and shareholders to create a larger scale, globally competitive Australian dairy food company owned and controlled by Australian dairy farmers. Importantly, it will retain the primary objectives of a co-operative in maximising farm gate returns for farmer owners. It will also support on-farm and industry investment, and in turn grow the Australian dairy industry for the benefit of regional communities.”

Highlights of Murray Goulburn’s Offer for WCB shareholders
- $7.50 cash per Warrnambool share, valuing WCB at $420 million1, which represents:
- 66% premium over the closing price of $4.51 per WCB share on ASX on 11 September 2013, the last trading day prior to the announcement of Bega’s offer;
- 7% premium to Saputo Inc.’s (Saputo) $7.00 cash per share offer and a 13% premium to the implied value of Bega’s offer, based on the closing price of Bega shares on ASX on 17 October 2013; and
- a price above the top end of the Independent Expert’s assessed value range for WCB, dated 12 October 2013.
- Fully funded with Murray Goulburn having secured additional debt facilities from its existing financiers National Australia Bank Limited (NAB), Australia and New Zealand Banking Group Limited (ANZ) and Westpac Banking Corporation (WBC).
- Creates a new 100% Australian farmer-controlled dairy food company with over 3,000 supplier shareholders delivering more than 4 billion litres of milk to nine processing sites annually. The business will be positioned for strong growth in both domestic and international dairy markets with forecast revenues in financial year 2014 of $3.2 billion including export sales of $1.4 billion to over 60 countries.
- A combined Murray Goulburn and WCB will also provide an excellent opportunity for WCB suppliers to become supplier shareholders in a globally competitive dairy food company, which will deliver future profits and growth to Australian dairy farmers and their communities. WCB suppliers who join the enlarged co-operative will participate directly in the benefits of co-operative ownership, including being able to participate in any future changes to Murray Goulburn’s capital structure that may arise as a result of the review that was recently announced to Murray Goulburn suppliers.
- Superior to both Saputo and Bega’s offer in terms of value and benefits delivered to WCB shareholders, rural communities and the Australian dairy sector as a whole.

1 Based on 56,038,138 WCB shares outstanding (after the issue of new shares under WCB’s existing performance rights plan, which are assumed to vest if Murray Goulburn’s Offer is to become unconditional).

Background to the Offer and Murray Goulburn’s intentions

Whilst Murray Goulburn has previously held high level and preliminary discussions with WCB, there has been no engagement with the WCB Board in relation to the Offer given the various deal protection mechanisms set out as part of the Saputo proposal.

Murray Goulburn has put forward this Offer on a friendly basis to WCB and its shareholders, and is looking forward to engaging constructively with the WCB Board. Murray Goulburn is seeking a unanimous recommendation from the WCB Board that WCB shareholders accept Murray Goulburn’s superior Offer. Murray Goulburn believes a recommendation should be forthcoming given that Murray Goulburn’s Offer is clearly superior to Saputo’s and is above the top end of the Independent Expert’s value range for WCB.

Murray Goulburn Managing Director, Gary Helou, said: “A combination with WCB is something we have been considering for a long time and we believe is in the best interests of WCB shareholders given the compelling strategic benefits that would be delivered to farmers, the dairy industry and local communities. We believe the formation of an Australian co-operative controlled by both Murray Goulburn and WCB suppliers provides significant benefits to all stakeholders, keeping profits onshore, maximising total farm gate returns to farmer shareholders and increasing the capacity for significant investment in the domestic dairy sector and individual communities.”

Mr Helou added: “We believe our proposal is both competitive and financially compelling to WCB shareholders. However, we also ask WCB shareholders to carefully consider the full picture. Namely, in addition to crystallising the value of their shares at an attractive price, they have the opportunity to contribute to the formation of a globally competitive Australian dairy food company that will act forthrightly and decisively in the interests of its suppliers and their communities.”

Mr Helou said: “WCB suppliers, who would be invited to join the co-operative, could benefit from direct participation in a globally competitive, large-scale enterprise to enable the Australian dairy sector to maximise the benefits of expected local and international growth in demand for high quality foods.”
As part of the Offer, should Murray Goulburn’s bid become successful and it acquires 100% ownership of WCB, Murray Goulburn intends to seek shareholder approval to rename the combined business ‘Murray Goulburn Warrnambool’ to reflect the view that the transaction essentially represents a merger of two high quality Australian dairy companies.


Financial metrics
Murray Goulburn is offering WCB shareholders $7.50 cash per share, valuing WCB at $420 million2, which represents:

- 66% premium over the closing price of $4.51 per WCB share on ASX on 11 September 2013, the last trading day prior to the announcement of Bega’s offer;
- 74% premium over the 6 month volume weighted average price of WCB shares on ASX up to and including 11 September 2013;
- a price above the top end of the Independent Expert’s assessed value range for WCB, dated 12 October 2013;
- 7% premium to Saputo’s $7.00 cash per share offer;
- 30% premium to the implied value of Bega’s offer, based on the closing price of Bega shares on ASX on 11 September 2013; and
- 13% premium to the implied value of Bega’s offer, based on the closing price of Bega shares on ASX on 17 October 2013.

Offer conditions
Murray Goulburn’s Offer is conditional on, among other things:
- no objection by the ACCC or granting of authorisation by the Australian Competition Tribunal in relation to the proposed transaction;
- Murray Goulburn having a relevant interest in greater than 50% of WCB by close of the Offer;
- no material new acquisitions, disposals or other commitments by WCB beyond certain financial thresholds; and
- no material adverse change or prescribed occurrence events occurring with respect to WCB.

The full proposed terms and conditions of the Offer are attached as Appendix 1.
Murray Goulburn’s Offer is subject to fewer conditions than Bega’s offer and provides WCB with a substantially greater level of operational flexibility. Murray Goulburn is confident in its belief that the Offer will deliver compelling strategic benefits to both Murray Goulburn and WCB suppliers, and the broader community as a whole, and is therefore confident in its approach to satisfying the ACCC/authorisation condition in relation to the Offer (detailed further under ‘Competition process’ below).

Dividends
The amount of any dividends declared or paid by WCB during the offer period will be deducted from the value of Murray Goulburn’s cash Offer. Should the WCB Board unanimously recommend that WCB shareholders accept the Offer then Murray Goulburn intends to match Saputo’s proposal in relation to the payment of dividends, such that WCB may pay a special dividend or dividends (which will result in a corresponding reduction in the Offer consideration) to utilise existing franking credits held by WCB. If this 2 Based on 56,038,138 WCB shares outstanding (after the issue of new shares under WCB’s existing performance rights plan, which are assumed to vest if Murray Goulburn’s Offer is to become unconditional).

Occurs, these franking credits may offer additional value for some shareholders, however this will be
dependent on the tax position of individual shareholders.


Rationale for the combination
The benefits arising from a combination of Murray Goulburn and WCB will include:
- Creation of Australia’s leading integrated dairy food company:
- Forecast annual revenues in FY14 of $3.2 billion
- Annual milk intake in excess of four billion litres from more than 3,000 suppliers
- Nine processing facilities employing almost 2,500 people predominately in rural and regional Australia
- Approximately one million tonnes of annual dairy production consisting of domestic and export ingredients product, domestic and export retail products, and nutritionals
- Diversified upstream production base in Australia’s best producing dairy regions
- Export sales of $1.4 billion in FY13 to customers in more than 60 countries
- Necessary scale, market reach and efficiencies to capture the benefits of an historic growth opportunity created by the emerging affluence of Asian consumers.
- 100% Australian farmer control, ensuring the benefits accruing from the combination will flow to farmer suppliers and their respective communities.
- Maintaining of key co-operative objectives, being the maximising of total farm gate returns for local dairy farmers in contrast to the objective of maximising dividends to foreign shareholders.
- Capacity and capability to leverage leading domestic and international brands including Devondale, Murray Goulburn, Liddells, Cobram, Great Ocean Road and Sungold to new domestic and international markets.
- Resolute focus on the success and best interests of its operating areas in Australia’s principal dairy regions, which will encourage and drive further investment in the domestic dairy sector and local communities, in contrast to the risk of being sidelined as a minor participant in a large multinational.
- Substantial opportunities for existing WCB and Murray Goulburn employees in an enlarged group with national and global reach.



Opportunity for WCB suppliers to join the Murray Goulburn Co-operative
A combined Murray Goulburn and WCB will also provide an excellent opportunity for WCB suppliers to become supplier shareholders in a globally competitive dairy food company, which will deliver future profits and growth to Australian dairy farmers and their communities. WCB suppliers who join the co­operative will be able to participate in any future changes to Murray Goulburn’s capital structure that may arise as a result of the review that was recently announced to Murray Goulburn suppliers.

Funding
Murray Goulburn has committed financing facilities available from its existing lenders to fund the Offer. A further $350 million of new facilities have been provided by NAB, ANZ and WBC in order to finance the transaction and assume WCB’s facilities to the extent required. Murray Goulburn’s Board and management believe that the level of leverage, post a successful transaction, is appropriate for a farmer owned co-operative structure in its current phase of significant growth and investment. The support of the financiers for these facilities reinforces Murray Goulburn’s view that the rationale and financial metrics implied by the offer are attractive.

Competition process
As described above, the Offer is conditional on no objection by the ACCC or granting of authorisation by the Australian Competition Tribunal. Murray Goulburn currently intends to seek approval for the transaction through the ‘public merger authorisation’ route, a public process which explicitly takes into account the public benefits of the transaction.

Murray Goulburn is 100% farmer controlled, and the primary objective of the co-operative is to increase returns to farmers. Murray Goulburn believes the proposed combination with WCB will provide a very positive outcome for both sets of suppliers, and will also create substantial benefits through the creation of a large domestic producer with the scale and strength to compete internationally and thereby grow Australian export volumes and revenues. Murray Goulburn is therefore confident in its approach to obtaining Australian Competition Tribunal authorisation.

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