Murray Goulburn Co-operative said the new bid, announced Thursday by Montreal-based Saputo (TSX:SAP), contains "substantial" conditions such as approval by Australia's foreign investment review board.
Saputo's bid is also contingent on receiving majority support from Warrnambool's shareholders, which include Murray Goulburn and another Australian dairy company with a total of 36 per cent.
The Murray Goulburn co-operative said Friday that it's "reasonable and in the national interest" that the foreign investment review of Saputo's bid not be resolved until Australia's competition bureau also rules.
As the dominant Australian dairy processor with 31 per cent market share, Murray Goulburn needs the competition bureau's approval to purchase Warrnambool, which has 10 per cent market share.
"Murray Goulburn 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," the co-op said Friday.
Saputo's new bid is a seven per cent premium to Murray Goulburn's offer of A$7.50 and a 20 per cent premium to another bid by Australian dairy Bega Cheese Ltd.
Montreal-based Saputo increased its all-cash offer for Warrnambool by a dollar to A$8 per share on Thursday. That values Warrnambool at A$444 million or about C$523 million, including debt.
Warrnambool's board reaffirmed its unanimous recommendation that shareholders accept Saputo's offer in the absence of a superior proposal.
Murray Goulburn said it "remains committed" to acquiring Warrnambool but stopped short of saying if it will boost its bid.
The co-operative and Bega are Warrnambool's two largest shareholders, each with about 18 per cent share of the company.
Chief executive Lino Saputo Jr. couldn't be immediately reached for comment but in a letter to Warrnambool shareholders he said its new offer "provides significant benefits" to the company and shareholders.
"Saputo has the strategic intent and financial capacity to invest further in Warrnambool to expand production and increase demand for milk, delivering benefits to Warrnambool's employees, suppliers and their local communities."
He said the Canadian dairy giant plans to increase capacity, support existing brands and introduce new product lines.
"Warrnambool will become the platform for Saputo to grow in Australia and through which to expand in the Asia Pacific region."
Irene Nattel of RBC Capital Markets said Saputo's new office is a "full price" but said the strategic rationale of the deal remain clear.
While Saputo fights for market share in mature markets in Canada and the United States, an acquisition Down Under would allow it to capitalize on growing global demand for dairy solids, she wrote in a report.
Australia is the world's third-largest exporter of milk products after the European Union and New Zealand, with about 10 per cent global market share.
The analyst expects Saputo would follow the template it pursued in Argentina where production has doubled since it entered the market in 2001 and where investments should double its capacity.
Keith Howlett of Desjardins Capital Markets said Warrnambool's board and management prefer Saputo's revised bid not only because it if financially superior, but also because it would expand the business.
He said Saputo's track record should assure milk producers that it "is seeking vigorous growth, not acquisition bragging rights, nor reasonably assure in-market synergies."
Howlett noted that Murray Goulburn's large debt could also be an obstacle to increasing its bid. Debt would almost double to A$1 billion if the co-operative raised its offer to AUD$8.50 per share. He suspects that Murray Goulburn would reduce debt by issuing new equity.
Warrnambool's shares closed up 3.3 per cent to A$8.42 in Friday trading on the Australian Stock Exchange, suggesting investors believe the bidding may not yet be over.
On the Toronto Stock Exchange, Saputo's shares gained four cents to C$51.40 at midday Friday.