Warrnambool Cheese & Butter Australia: Acquisition and Appraisal

In January 2017, Canada-based Saputo Inc. was preparing an offer to acquire the remaining shares of an Australian dairy firm, Warrnambool Cheese & Butter Factory Co. Hold. Ltd. (WCB). Saputo Inc. had previously acquired a majority of the equity, but minority shareholders prevented Saputo Inc. from delisting WCB from the Australian Securities Exchange. Although WCB was a publicly traded company, the current share price might not reflect its intrinsic value because its shares were very thinly traded, with most shares being owned by Saputo Inc. and a few minority shareholders. Saputo Inc. had to determine an appropriate offer price for the acquisition.Learning Objective:The case is suitable for undergraduate- and graduate-level courses on mergers and acquisitions or for valuation units in courses in international or corporate finance. Students will undertake comprehensive external and internal analyses, and develop valuation models to determine an appropriate price for the company’s shares. After working through the case and assignment questions, students will be able tocomplete comprehensive external, internal, and financial analyses;understand that the share price may not reflect a company’s intrinsic value owing to low trading volume;apply knowledge of the capital asset pricing model to estimate the weighted average cost of capital;undertake an intrinsic valuation approach by developing a discounted cash flow model; anduse a relative valuation approach by selecting appropriate comparable firms and multiples.