Milk Maid in WCB wonderland as Saputo offers $8

Well, I wonder what MG will do now? And where will it end? Judging by the email I just got from MG, the co-op’s going to sit on its hands and hope the FIRB undermines Saputo’s bid.

“Murray Goulburn (MG) notes the revised conditional offer by Saputo for Warrnambool Cheese and Butter (WCB) announced today.”

“MG notes that Saputo’s offer continues to be subject to substantial conditionality. MG believes that resolution of the future ownership of WCB will be a long process and that WCB shareholders should not act prematurely in relation to giving up control of their shareholdings.

“MG remains committed to acquiring WCB and to satisfying all conditions associated with its offer as quickly as possible. MG presently owns 17.7% of WCB.

“MG believes it to be reasonable and in the national interest that Saputo’s Foreign Investment Review Board (FIRB) application to acquire WCB is not resolved until the public benefits of MG’s proposed acquisition of WCB have been given full consideration – pursuant to MG’s application for authorisation to the Australian Competition Tribunal to acquire WCB.

“MG considers its offer will bring many benefits for WCB shareholders, WCB suppliers, the Warrnambool community and the Australian dairy industry.”

But if push comes to shove, will MG go higher than $8?

I do understand the reasoning behind the co-op’s drive to acquire WCB for all the reasons outlined by Gary Helou when interviewed by the Australian Financial Review the other day (the video is very, very interesting). The WCB bid is important because it allows MG to grow quickly and achieve efficiencies similar to that of its giant Kiwi rival, Fonterra. Those efficiencies should mean better margins, which the coop would pass back to farmers.

On the other hand, it does make me feel like Alice in Wonderland just a little. When MG last launched a takeover bid for WCB in 2010, the price was $4.35 and WCB hasn’t suddenly hit the jackpot – its profits have fallen.

On the farm, we are in recovery mode from a year when the average Gippsland dairy farmer lost a lot of money. As the Dairy Industry Farm Monitor results 2012-13 showed:

“In what was a difficult year for many Gippsland farmers, average return on assets fell to -0.2% with average whole farm earnings before interest and tax down 82% to $37,609.  The average return on equity for Gippsland farms was -6.2% with average net farm income across the region reported at -$58,784. This performance impacts on the decision making ability of farmers in 2013-14.” 

The difference, says Helou, is that demand for milk is growing by 6 per cent while supply is growing at 2 per cent. If this is more than just a blip and a long-term trend, why wasn’t this foreseen three years ago? Curiouser and curiouser. Please forgive me for being a little confused.

Friendly fire from the milk co-op

I don’t think MG’s chief banana, Gary Helou, was expecting its farmer shareholders to be pleased with the co-op’s rebranding exercise. Referring to the Dev ‘n Dale ads, he writes to his farmers:

“We have received several comments about the adverts in relation to farmer image. It is important to note that the Dev and Dale adverts have been carefully designed to achieve consumer cut-through to drive brand recognition and sales volumes.”

“This strategy is based on humour and the comic characters were designed to be over-the-top so they could not be construed as real representations of our farmers.

“The Dev and Dale characters were also developed to create greater recollection of the brand. Earlier market research found that consumers did not have strong recollection of the Devondale name or brand, and this means consumers are not often enough considering our products for purchase.

“We will monitor consumer response carefully to ensure there are no negative connotations for industry image.”

In earlier letters, the co-op had explained that the old branding was associated with a low-cost positioning and it was important to add value to the brand. I guess Dev ‘n Dale is their interpretation of “upmarket” then.

Please let me know – are the ads funny, memorable and indicative of a premium brand?

PS: For an alternate approach, check out Yeo Valley’s UK dairy promo.