Saputo stock climbs after takeover bid for Warrnambool

Tue Oct 8, 2013 12:38pm EDT
 
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TORONTO Oct 8 (Reuters) - Shares of Canadian dairy producer Saputo Inc rose 3.5 percent on Tuesday after the company announced a $370 million bid for Australia's Warrnambool Cheese and Butter Factory Co Holdings Ltd, a deal that analysts said would give Saputo a foothold in an attractive market.

Acquisition-hungry Saputo, whose all-cash offer trumped an earlier bid from Warrnambool's majority shareholder, Bega Cheese Ltd, said it expects to grow through more takeovers, potentially in Australia. Warrnambool manufactures cheese, butter, milk, cream and such dairy products as whey.

Australia is one of a handful of countries whose milk production exceeds domestic needs at internationally competitive pricing, serving as a platform for export sales, BMO Capital Markets analyst Peter Sklar said in a note.

Based on Warrnambool's projection, the acquisition could add about 9 Canadian cents per share to Saputo's earnings, a boost of about 3 percent, Sklar wrote.

Shares of Montreal-based Saputo, which were trading at C$51.27 in Toronto, rose as much as 4.5 percent on Tuesday, hitting their highest level since May 31. At midday, just under 326,000 shares had changed hands, topping the 90-day average of some 278,600 shares.

Saputo, Canada's largest dairy producer and among the top three cheese producers in the United States, warned in August of a tough year ahead. The company, which acquired U.S.-based Morningstar Foods in January 2013, said it expected the dairy market to be challenging for the remainder of its fiscal year 2014, citing tougher competition.

"Saputo is committed to continuing its growth-by-acquisitions strategy, which has served investors well since the company's IPO in 1997 (shares up 11 times)," Desjardins Capital Markets analyst Keith Howlett said in a note. "Saputo has a good track record of selecting acquisition targets in the dairy business and increasing EBITDA margin post-acquisition." (Reporting By Susan Taylor; Editing by John Wallace)