Bidding duel for Uruguay farms

NZ Farming Systems in Uruguay. Photo / Supplied

A second foreign company has entered the takeover fray for NZ Farming Systems Uruguay and chairman John Parker says others are taking a look.

NZ Farming Systems was set up by rural services company PGG Wrightson to develop dairy farms in Uruguay.

Uruguay-based Union Agriculture Group yesterday made a 60c-a-share takeover bid, which follows a 55c bid last month from Singapore-listed Olam International.

At present, Union Agriculture has 1.65 per cent of the company, while Olam owns 18.45 per cent and has agreed to buy 11.5 per cent from PGG Wrightson. Both bids are for all shares and conditional on getting more than 50 per cent of the voting rights.

Parker said it was a positive reflection of a view "that this company is worth a damn sight more than its share price has indicated".

NZ Farming Systems shares closed up 5c yesterday at 63c, compared with a one-year low of 37c.

More parties were looking at the company, Parker said.

"Of course we cannot determine with any precision the degree of their interest or whether they're just kicking tyres."

Forsyth Barr analyst John Cairns said the bid by Union Agriculture increased the competitive tension within the process.

"At this stage, I notice that [Union Agriculture] had about 1.65 per cent stake," Cairns said.

"Whereas Olam certainly are in a much stronger position with controlling an 18-odd per cent stake directly and they've got their foot firmly on that [PGG Wrightson] stake."

The market would be focused on the independent appraisal report and the financial result which was due out next week, Cairns said.

"The ball's back in Olam's court."

Olam would struggle to make a 55c offer sound attractive with a higher offer in the market, he said.

Having a cornerstone shareholder of some resource was strategically important because of a significant amount of capital that had to be raised to complete the development.

NZ Farming Systems has said it needed to raise about US$60 million ($85 million) to complete its development and that it could issue bonds in Uruguay, bring in new equity and sell drystock farms. Parker said there were reasons why the share price had been depressed, including a degree of uncertainty about funding and a performance that was not as good as that indicated at the launch of the company.

"They [Union Agriculture] see substantial synergies between their operations and ours, I guess, in terms of inputs, administration, etc."

The board yesterday advised shareholders not to sell before getting more information, including a target company statement and independent appraisal reports.

"This is an evolutionary process, I would think, and one cannot know as to how these parties may react to having another player there," Parker said.

Independent adviser Grant Samuel's valuation of the company should be out in the next few days, he said.

"Our expectation is that it may well be somewhat higher than either of the current offers."

The critical issue for the company was the need for additional funding, Parker said. "We await with interest to hear from both of these companies because it will strongly influence the advice that the directors will give to shareholders and it will strongly influence shareholders' views how they describe or intend or commit to funding the development needs of the company."

NZ Farming Systems was not in desperate need of outside investors but would be better off with the funding secured, he said.

"We have other ways of doing it but it would certainly be attractive to have some new funding in there."

Olam said yesterday it would review NZ Farming Systems' annual results and the target company statement, including the independent appraiser's report before determining its future course of action.

Olam said that as at August 13 it had received acceptances that, taken with its existing holding, represented 30 per cent of the company.