Dairy bid battle reflects the changing rural landscape Cheese manufacturing at Warrnambool Cheese and Butter. THE battle for the relatively small Warrnambool Cheese and Butter company in Western Victoria is shaping up as a seminal inflection point in the future of regional and rural Australia. This was given dramatic emphasis with the parallel announcement last week that the Swedish whitegoods maker, Electrolux, would close its plant at Orange in western New South Wales, throwing more than 500 people out of work. On the one hand we have three groups competing to throw money at buying a business in Warrnambool; on the other, a company walking away from Orange, with devastating broader consequences for that city. The three-way battle to buy WCB is also one of the most intriguing takeover contests we've seen, with three very different groups with very different ambitions, bidding. One bid has come from a global major, Canada's dairy giant Saputo, seeking to break into Australia. The second is from a big local dairy group, Murray Goulburn, which is structured as an "old-fashioned" co-operative, owned by its farmer-suppliers. The third is from a small dairy group, Bega Cheese, which used to be a farmer-owned co-operative but recently changed to a normal company listed on the ASX. This means they have very different considerations to offer WCB shareholders. They have very different ambitions. And they would produce very different outcomes for the future - not just of the WCB business and Warrnambool, but arguably for the entire dairy industry in Australia. It started with $7 a WCB share, which the board of WCB - either unwisely or very cleverly - immediately accepted. Unwisely, because it was like accepting the second bid (after Bega had made the first) in what they should have known was going to be a spirited auction between potentially many bidders. Or cleverly, if they thought their "acceptance" would winkle out other bidders - as it did, with MGC promptly launching its bid. That forced Saputo to come back at $8 a share. Again, it - this time, arguably clearly unwisely - was immediately accepted by the WCB board. As a co-op, MGC also can only offer cash. But with a twist: it can offer WCB's farmer-suppliers who would mostly also be WCB shareholders, something that Saputo can't: Supplier equity in the co-op. Why is this important? Because it would give accepting WCB farmer-shareholders a big price for their shares in cash up front; plus a continuing stake in the future success of an enlarged MGC-WCB. That can be done more explicitly by Bega and for all WCB shareholders, not just the farmer-suppliers; as it has done, with the heavy emphasis on its own shares as the major part of the takeover offer. But it means it simply can't offer much cash up front. There's another layer of complication that points also to the big issues around the futures of the industry and the rural communities. The Saputo and MGC offers are both subject to approval. Saputo's by (ultimately) the federal treasurer, as a foreign takeover that has to show it is in the national interest. MGC's by the Competition Tribunal - it has deliberately bypassed the normal ACCC approval process - that also has to show a net benefit to the national interest. This means only the lowest bid from the weakest contender, Bega, has an absolutely clear run. So by overlapping layers of regulatory approvals and head-to-head bidding, both WCB shareholders and the broader community have to choose the future of dairy in Australia. We could knock back the bids from the big two, allowing Bega to bulk up - possibly to build a new force in dairy across Australia; possibly just to survive; possibly just to be "fattened" for another takeover from a major player, local or foreign. We could allow MGC to buy critical scale, product range and supply; enabling it to become a "national champion" in an industry that should have a great growth future as China and the rest of Asia grows richer. We could allow WCB and dairy more broadly to be plugged into a global major; enabling it to grow into that future; but with the future profits accruing to foreigners. Arguably, as I discussed last week, this is not the best time to really understand the full potential and so the future value of our rural businesses. Their revenues and profits are being hit by a double squeeze. - from the big two supermarkets trying to force down prices; and from the high value of the Aussie dollar. Further, this has been imposed on existing pressures; from high costs and the fragmented nature of much of the existing industry. As the Electrolux announcement demonstrated, this is all coming at a critical time for the 40 per cent of Australians who live outside the capital cities. It's just the latest of dozens and dozens of announcements, closing factories and in some cases, effectively, the towns as well. It's tough enough trying to survive in a manufacturing business in the capital cities; much tougher in the bush. Except perhaps, precisely the sort of business that WCB is: manufacturing value-added product off our intrinsic farming base. But how best to do it? Through national champions, merging small guys, or locking into global - foreign - groups? Is it even possible with the dollar pushing towards parity? These are the sort of big questions that are being posed to WCB shareholders in the first instance, to the treasurer and then competition authorities in the second. All the while, as the Electrolux announcement shows, the clock is tick, tick, ticking away.