The race to sate Asia's increasing appetite for dairy foods has made even the worst-performing producer in the region the target of a bidding war.
Canada's largest dairy processor, agreed to pay US$372 million for Warrnambool Cheese & Butter Factory, topping a bid from Bega Cheese.
Warrnambool, which exports most of its produce to nations including China and Japan, is trading above Saputo's October 8 offer of A$7 (HK$51) a share. That, said Canadian investment bank Canaccord Genuity, showed some investors expected a higher proposal for Australia's oldest dairy producer.
After the slowest profit growth of any Asian peer in the past five years, the 125-year-old company is projected to almost triple its earnings this year amid a surge in milk powder prices and record Chinese demand.
Bega, Warrnambool's local rival and its largest shareholder, might be able to raise its bid by squeezing out more cost savings, said RBS Morgans.
Bega must boost its offer to A$7.50 a share to win over Warrnambool investors, Canaccord said.
"Dairy, in particular, is benefiting from increased Asian demand," said Stephen Scott, the head of research at Ord Minnett. "There's not a lot in the listed space left once Warrnambool goes."
Warrnambool, which supplies milk to make Philadelphia cream cheese, is named after the hometown of its founders in the state of Victoria. Warrnambool now relies on exports for most of its sales and last year made 143,000 tonnes of dairy produce including cheese, milk powder and infant-formula ingredients.
Even after posting its lowest profit since 2009, Warrnambool was attracting bids just as the dairy-exports cycle emerged from a trough, said chief executive David Lord.
Poor weather in the world's main milk-producing regions had dented supply, driving up prices, Lord said.
"We're seeing a dramatic improvement in market conditions," he said. "We're seeing a rise in demand out of China. The difference between what they can produce for themselves and what they need is becoming wider."
Lord said it was "possible" that Warrnambool's stock price reflected investors' expectations of a higher bid.
China was setting new records for milk-powder imports, and demand for produce in India was outstripping local production, Warrnambool said on Wednesday.
This year, the price of exported milk powder would surge 33 per cent, butter would rise 16 per cent and cheese would climb 12 per cent, it said.
Warrnambool's net income in the year ending June is forecast to rise to A$20 million from A$7.49 million in the past year.
Southeast Asia's six largest economies - Indonesia, Thailand, Malaysia, Singapore, the Philippines and Vietnam - are also unable to produce enough dairy goods to meet domestic demand, Rabobank, which specialises in agricultural research, said in a report in July.
Annual milk consumption in those countries would jump 27 per cent between 2012 and 2020 to 14 billion litres, it said.
"Saputo in North America can see the growth in Asia," said Mark Topy, an analyst at Canaccord. "Australia or New Zealand is the obvious place to be."
A family-controlled business, Saputo plans to use Warrnambool to spearhead sales in Asia. The Australian company would be "the main platform" to tap demand in the Asia-Pacific region, Saputo said last Tuesday.
Saputo also said it planned to invest in Warrnambool's domestic operations to boost capacity.
Montreal-based Saputo offered A$7 a share in cash, valuing Warrnambool at about A$392 million. The proposal was approved by Warrnambool's board and beat a stock-and-cash bid from Bega that was valued at A$5.78 a share when it was announced on September 12.