WHEN Bega Cheese executive chairman Barry Irvin resigned as a director of Warrnambool Cheese and Butter last March, warning lights flashed in the Victorian dairy group's boardroom.
WCB chief executive David Lord and his adviser CIMB, led by Craig Evans and Brodie Treloar, knew an offer was coming when Irvin stepped down.
It was just a couple of weeks after WCB's Sungold Field Days festival, held behind Cheese World, opposite the main factory at Allansford, Victoria. A lot of attention had also already been placed on the historic company's coming 125 year anniversary.
Lord was surprised when Bega and its long-time adviser, Kidder Williams founder David Williams, went around the board to lob a hostile $5.78 cash and scrip bid directly at WCB's shareholders in September 2013.
Irvin gave WCB chairman Terry Richardson a courtesy call to let him know the $319 million bid was on the table. That call ended all direct communication between the companies despite the fact there were nine more bids to come in a dramatic battle that continued into 2014.
Evans and Treloar knew WCB was vulnerable. Its full-year result in August was weak and several strategic initiatives were yet to bear fruit.
The defence team engaged PwC to validate strong WCB earnings forecasts and commissioned an independent expert report from KPMG to ward Bega off and show the bid was low-ball. The feelers went to other parties and CIMB was talking to Canadian dairy giant Saputo's advisors Rothschild and Rabobank days after Bega's move.
Saputo had been kicking the tyres in Australia for more than 10 years. It had expressed its interest in WCB and established a low-level relationship.
Saputo's team in Australia, spearheaded by Rothschild's Sam Prentice, had already run some numbers on WCB and was ready to move, lodging its Foreign Investment Review Board application just weeks after Bega's bid.
Prentice, Treloar and Evans had all worked together at ABN Amro and the three bankers were able to get an offer on the table quickly.
Getting Saputo into the game was critical for Evans and Treloar. The Canadians entered the fray with an agreed $7 a share cash offer on October 8. The bidding war was on.
When Saputo turned up, Bega had 18 per cent of WCB and farmer co-operative Murray Goulburn had 17 per cent. Saputo knew its WCB bid had to be friendly. It learned the value of having the board on side watching the spat when Murray Goulburn made a $180 million bid for WCB in 2010.
For Bega adviser David Williams, the legacy of Murray Goulburn's attempt three and a bit years ago was critical in deciding the victor in the cheese wars.
The failed takeover saw Bega act as WCB's white knight, securing about 15 per cent of WCB and getting Irvin his seat on the board, while Murray Goulburn came out of its takeover attempt with about 10 per cent of WCB.
As part of the bitter takeover tussle in 2010, WCB pushed farmers to write to the Australian Competition and Consumer Commission objecting to Murray Goulburn's offer. The ACCC's statement of issues was a red light and saw Murray Goulburn withdraw.
This history meant the co-op, advised by Lazard's John Wylie and Charlie Whiting, carried baggage when it bid $7.50 a share cash on October 18.
The Lazard and Murray Goulburn team met with a sub-committee of the WCB board – which was formed to deal with the takeover bids flying thick and fast at the target – to discuss their offer.
Murray Goulburn's lawyers Herbert Smith Freehills put the co-op onto the untried merger authorisation route, an alternative to the ACCC.
Murray Goulburn managing director Gary Helou knew time was against him and he pitched his vision of an Australian-owned co-operative directly to farmers while the lawyers scrambled.
About 35 per cent of WCB's register was held by Warrnambool locals in the lush dairying country in south-west Victoria, and Lord, Helou and Irvin knew it would be a battle for the hearts and minds of local farmers.
Lord, Helou, Irvin and Saputo chief executive Lino Saputo Jnr all took part in roadshows throughout the Warrnambool region. Lino Saputo flew to Australia three times during the battle.
Saputo countered Murray Goulburn with a revised bid of $8 a share in cash (worth $448 million) on October 25, while Bega Cheese was keeping up in the race as its share price rose to new highs, boosting the value of its bid.
Then, in the final days of October, things really heated up.
Lion, owned by Japan's Kirin, was first out of the blocks on October 28. Flanked by long-standing adviser Greenhill (formerly Caliburn), Lion called on RBS Morgans to conduct a share raid. Perpetual and Wilson Asset Management were among the sellers.
Lion took almost 10 per cent of the target and temperatures were rising. An rush of phone calls back and forward between camps took place as players looked to pre-empt the next strategic move. The situation took another twist as New Zealand's Fonterra called on Reunion Capital Partners to get a seat at the table.Informal discussions came and went ending with the conclusion that a blocking stake in Bega was a win-win for both companies.
Fonterra picked up 6.5 per cent of Bega in one swoop while the rest of the almost 10 per cent holding was acquired on market – further boosting the value of Bega's shares and offer.
By the end of October Bega was through the ACCC, while Saputo got the green light from FIRB two weeks later, fuelling speculation Murray Goulburn was a political victim of the government's desire to maintain a pro-business image before blocking the GrainCorp takeover.Helou complained that the Aussie bidder was competing on an uneven playing field
The conditionality of Murray Goulburn's offer was always its weakness, and Saputo's FIRB approval was the beginning of the end for the co-op.
Williams joked Murray Goulburn's offer was as real as a bid from Casper the friendly ghost. Williams then faxed Wylie a picture of Casper, which is now decorating the wall in Whiting's office.
Murray Goulburn upped its cash bid to $9 a share on November 13.The day after, Bega Cheese went unconditional and final, upping the scrip component of its bid to 1.5 Bega shares. The next day Saputo matched Murray Goulburn at $9 cash and went unconditional.
Murray Goulburn went to $9.50 a share. It became a running joke in the WCB boardroom that the directors did not know they would have to see each other so much when they signed on. Shortly after, WCB pulled confusing special dividend payments attached to Saputo's offer. The loss of the franking credits was seen by Murray Goulburn and Bega as a decline in the offer value.
The pair took Saputo to the Takeovers Panel and won, temporarily preventing Saputo from processing acceptances and derailing its momentum. Saputo amended its bid and declared its offer final, heaping pressure on its rivals.
Bega dropped out of the race just before Christmas and Williams's job became getting the best sale price for Bega. Rumours of a Chinese buyer for Bega's stake surfaced and Rothschild took no chances, putting a firm close date on its offer.
Bega folded into Saputo's offer on January 16 and a wave of hedge funds followed. Once Saputo reached 50 per cent, Murray Goulburn's bid was cheese on toast. The co-op withdrew and sold to the Canadians soon after.
The last piece in the puzzle is Lion and its intentions with its 10 per cent stake. Saputo has almost 80 per cent of the WCB register and has won the battle at a price of nearly $550 million, but Lion can keep WCB listed and prevent a compulsory acquisition if it doesn't sell.
Saputo's offer closes on Wednesday.