Saputo Inc's failure to deliver a knockout bid in the three-way battle for Australia's oldest dairy company is leaving the door open for rival suitors to jump in with sweeter offers.
The target Warrnambool Cheese and Butter Factory Co surged to a record A$9.39 in Sydney trading on Monday, fuelled by market speculation that the months-long takeover battle has further to run and Saputo's rivals Murray Goulburn Co-operative Ltd and Bega Cheese Ltd may increase their bids.
Warrnambool has doubled in value since Bega, its biggest shareholder, made the first approach in September. Warrnambool now has a market value of around A$520 million ($490 million), well above Saputo's latest A$505 million, or A$9 per share, unconditional offer made late Friday.
"There's some level of anticipation there might continue to be a bidding war between the three companies," said Steven Daghlian, market analyst at Commonwealth Securities. "It's pricing in that possibility at this point because each week we're seeing an offer from Bega, Murray Goulburn or Saputo."
Murray Goulburn Managing Director Gary Helou told the Australian Financial Review that his company was considering lifting its bid, but did not specify how high.
Analysts warn that Murray Goulburn, which has a 17 percent stake in Warrnambool, will need to take its offer beyond A$10 per share to have any hope of winning approval from the Warrnambool board, which has thrown its weight behind Saputo's offer.
Murray Goulburn is hamstrung because it needs regulatory approval from the Australian Competition and Consumer Commission (ACCC), meaning it cannot make an unconditional offer. ACCC Chairman Rod Sims has expressed concern a Murray Goulburn win could pose a risk to competition for milk supplies.
Bega, meanwhile, is lagging with an offer of A$2 cash and 1.5 Bega shares per Warrnambool share. That puts the bid at A$9.22 per share currently, but at the mercy of the market. Bega has already received ACCC approval, and said its latest bid was its final offer.
Warrnambool argues Bega shares are overvalued, fuelled by speculation and its 18 percent stake in Warrnambool.
Warrnambool and Bega could not be immediately reached for comment, while Saputo and Murray Goulburn declined to comment.
There are also concerns Warrnambool itself has become overvalued amid the bidding frenzy. Bid levels have jumped quickly since Bega made an offer of A$319 million in September.
Canada's Saputo, Murray Goulburn and Bega Cheese Ltd are in a race to lock in a major supplier to the rapidly growing dairy market in Asia. The Chinese dairy import market has expanded to around $4 billion currently from $400 million 10 years ago.
Murray Goulburn's Helou dismissed suggestions the winner could end up paying too much for Warrnambool, saying the market was looking at the strategic value of the sector and the gap between supply and demand in Asia.
Warrnambool is attractive for both its basic dairy produce - it churns out around 800 million litres of milk a year via its shareholder farms - and infrastructure that includes a high-tech plant producing value-added milk extracts.
The extracts, known as nutraceuticals, are a core element in health-promoting products from premium infant formula to bone supplements. The nutraceuticals market in the Asia-Pacific is set to be worth $80 billion by 2017 as Asia becomes more affluent and diets change.