A takeover bid by Singapore-listed Olam International for NZ Farming Systems Uruguay may struggle to get much more than 50.1 per cent, says Forsyth Barr head of research Rob Mercer.
Olam owns 18.45 per cent of the company and has offered 55c each for all shares, with a lock-up agreement to buy 11.5 per cent from PGG Wrightson.
PGG Wrightson set up NZX-listed NZ Farming Systems to develop dairy farms in Uruguay.
The takeover offer is conditional on getting more than half the voting rights and consent under the Overseas Investment Act 2005.
Mercer said the 55c offer was more than the shares traded at last week but a long way south of the current book value. Shares closed at 54c yesterday.
"I would say at first glance that they'll be struggling to get much more than 50.1 per cent," Mercer said.
"But then the independent expert report might find something different."
The book value of assets less any money owing was about $1 a share, he said.
"If you were to liquidate this you'd have to be sure about whether the book value was a good benchmark for the market value today, which it may not be," Mercer said.
"Market value might be less, might be more, which is what I think the independent expert report really needs to do a thorough job on," he said.
"There's no rush for people to get out there and make any judgment at this point, they should really wait for the detail of that expert report."
It was positive for NZ Farming Systems to have Olam as a major shareholder, Mercer said.
"It signals to shareholders that there is a global player that wants to stick with this investment and put further capital into it to help it to achieve its potential but it's a long investment horizon to get there."
NZ Farming Systems has said it needed to raise about US$60 million ($84 million) to complete its development and could issue bonds in Uruguay, bring in new equity and sell dry stock farms.
"If you look at it sensibly it's going to require substantial ongoing investment over many years to keep converting the hectares to dairy-producing land," Mercer said.
Olam general manager for strategic investments Venkataraman Krishnan said the 55c offer was a 38 per cent premium over a three-month average trading price and had the support of the second-largest shareholder, PGG Wrightson.
"We believe that our offer represents full value for shareholders if one takes into account historical performance, farm development status and current financial situation," Krishnan said. NZ Farming Systems had the potential to become a globally competitive producer of milk, he said.
"We would strive to take [the company] to its full potential by expanding and/or optimising [its] current farming operations and land bank and backing it up with Olam's strengths in the dairy industry, risk management expertise as well as financial standing."
The offer was to buy all outstanding shares, however Olam needed to be in a position of control with 50.1 per cent to influence the future direction of the company, Krishnan said.
"If the offer is successful, Olam will either hold 100 per cent or between 50.1 per cent and 90 per cent, with which we are happy to keep [NZ Farming Systems] listed in New Zealand." Olam's offer document said should the offer be declared unconditional it would not make any offer at a higher price between that date and March 31, 2011.
"Olam's dairy business has established strong positions in origination out of Western and Eastern Europe, South America and South Asia as well as leadership positions in most markets in Africa," Krishnan said.
"Our stated strategy is to selectively integrate across the value chain by participating in dairy farming in low cost origins that will further strengthen our market position and significantly raise our margin profile."
NZ Farming Systems Uruguay: Set up by PGG Wrightson to develop dairy farm operations in Uruguay. Floated on the NZX in 2007.
Olam: Singapore-based supply chain manager of agricultural products and food ingredients. Operates in 64 countries. Businesses include cocoa, coffee, cashew, sesame, rice, cotton and wood products.