Bega's $11m taste for Capilano stirs bidding war speculation

Fresh from announcing a 45 per cent jump in its normalised after-tax profit to $44 million last week, Bega has paid an average of $21.08 a share for 5.76 per cent (544,356 shares) in the Brisbane-based former beekeeper co-operative.

Capilano was already preparing for a private investor takeover at $20.06 a share following an offer last month by private equity fund, Wattle Hill, and investment manager, Roc Partners.

Roc is a long-term Asia-Pacific based investor with $4.4 billion in pooled funds, while the two-year-old Australian-Chinese Wattle Hill business has food interests including ginger and macadamia processor, Buderim Group, and goat milk producer and formula business, Bubs Australia.

Capilano management is not commenting about Bega’s move at this stage, saying it has had no contact with the dairy and grocery player or any indication of its intentions.

However, Bega’s buying spree sent the honey company’s Australian Securities Exchange share price well above the Wattle Hill-Roc Partners syndicate offer, reaching $21.19 on Monday.

Capilano directors, and the company’s biggest (22pc) shareholder, Kerry Stokes’ family’s Wroxby Limited,  have supported the Wattle Hill-Roc syndicate bid, on the proviso no higher takeover offer was received.

A scheme booklet with offer details to shareholders is due to be released this month in time for a shareholder vote in November.

Bega Cheese is also staying mute about its new-found taste for honey.

However, market observers are speculating a bidding war could be brewing given the synergies Capilano would have with Bega’s other recently acquired spread brands, including Vegemite.

Alternatively, Bega may be happy to settle for a passive stake and a business partnership with Capilano, as it has done in the past when expanding its milk processing activities.

“Bega’s a pretty shrewd operator – there’s a longer term strategy at play here,” said a dairy market analyst.

He noted how the NSW South Coast company managed to net a $50m windfall even when it was unsuccessful in a takeover bid for Victoria’s Warrnambool Cheese and Butter four years ago, selling its 19pc stake for almost twice what it paid.

Market speculation also tips Bega may soon seek out fresh capital from the share market to help cover the cost of its $250m July purchase of the 800m litre-capacity Koroit milk factory, near Warrnambool, also firming up its balance sheet so it can pay for more milk purchases to lift the plant’s processing throughput.

Enlarging its capital raising plans to fund a bigger, or controlling, stake in Capilano may be on the cards.

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Late last year Bega executed a friendly $12m takeover of Queensland’s Peanut Company of Australia to help shore up supplies of raw peanuts for its new spreads and sauces division.

Earlier in 2017 it had begun its bold diversification push, outlaying $460m to buy Kraft’s Australian and New Zealand spreads and dressings business from US food giant Mondelez.

Acquisition of those popular lines, plus increasing cream cheese, mozzarella and other dairy product sales subsequently enabled Bega Cheese to record a 17pc lift in revenue to $1.44 billion in 2017-18.

Export sales rose 29pc to $430m.

Despite the drought and increasingly fierce competition for milk Bega is expecting to grow its milk intake further this fiscal year.

Bega's executive chairman, Barry Irvin, said he was delighted with the strategic progress of the company and its sound underlying financial performance.

“It’s been a very significant financial year, and we've had significant achievements in terms of the growth and the profile of Bega Cheese".

Meanwhile, the honey industry is also abuzz with claims and counter claims about the credibility of imported honey from China, after several supermarket chain brands and Capilano’s Allowrie mixed blossom honey were identified by overseas tests as potentially containing syrup ingredients not made by bees.

Capilano managing director, Ben McKee, criticised the method of testing commissioned by law firm King & Wood Mallesons, saying the results were inconsistent and different to Australian testing.

Dr McKee said the nuclear magnetic resolution (NMR) test relied on a database in which honeys local to Australia were under represented.

"We have full confidence that Allowrie honey contains only pure honey,” he said.

However, he also wants the industry to work to prove up the NMR test so that it matches the robustness of results from other testing currently relied on internationally.