Three way tussle on cards for NZ Farm Systems

NZ Farming Systems Uruguay was set up by PGG Wrightson to develop dairy farm operations in Uruguay. Photo / Supplied

A mystery investor is talking to NZ Farming Systems Uruguay in a move which could spark a three-way scrap over the NZX-listed company.

Two foreign companies have already announced takeover bids for NZ Farming Systems, which was set up by rural services company PGG Wrightson to develop dairy farms in Uruguay.

Singapore-listed Olam International has offered 55c a share for the company and Uruguay-based Union Agriculture Group has given notice of a 60c offer.

NZ Farming Systems' shares closed yesterday unchanged at 63c.

Chairman John Parker said the two bidders were not hostile and the company had sought funding. "Because we've freely admitted we need more funds," Parker said.

An independent adviser's report by Grant Samuel said the company needed capital expenditure of US$62.6 million to complete its development, including US$16.8 million for irrigation and US$11.7 million for milking sheds.

NZ Farming Systems' board was in negotiation with a potential new investor involving a significant minority investment, Parker said. "The third proposal is rather different in that it would involve new equity being issued and therefore funds raised to complete our development programme but without any suggestion of a change of control."

The offers by Olam and Union Agriculture are both conditional on having more than 50 per cent of the voting rights and any consent necessary under the Overseas Investment Act 2005.

The terms of the potential new investment currently looked acceptable to the board and any proposal would need shareholder approval, Parker said. "We're endeavouring to conclude our negotiations with the new investor in time for a special shareholder meeting to consider that proposal prior to the closing of the Olam offer."

Parker said shareholders should not accept the Olam offer, which was below the Grant Samuel valuation range of 65c-79c a share and did not include a premium for control.

"An important point for us is that the offer as of yet provides insufficient detail on development funding plans," he said.

Parker also recommended shareholders did not sell to Union Agriculture Group and said a target company statement was expected to be issued in mid-September.

Olam has said NZ Farming Systems set unrealistic operational targets and that significant changes were needed to the strategy.

"I think a change in strategy at the moment would reduce the company's ability to capitalise on the positive outlook," Parker said. The company yesterday said revenue for the year ending June 30 was up 42 per cent to US$22.5 million, reflecting a 52 per cent rise in milk production and higher average milk prices, partly offset by lower sales of surplus livestock.

The net loss for the year was US$7.9 million, compared with US$45.9 million the previous year.

The latest year had put the company back on track, Parker said.

"We expect, subject to funding, to further reduce our operating loss in the current 2010-11 year, establish profitability by the 2011-12 year, completing development of our dairy operations over the upcoming two years, before achieving steady state production in 2015-16," he said.

Forsyth Barr analyst John Cairns said the type of dairy conversion the company was undertaking was a longer-term capital develop programme and not without risks.

"I don't think shareholders need to do anything at the moment," Cairns said. "You've got three parties here so there's a good deal of competitive tension in the process."

THE TAKEOVER

NZ Farming Systems Uruguay:

* Set up by PGG Wrightson to develop dairy farm operations in Uruguay.

Olam International:

* Singapore-based supply chain manager of agricultural products and food ingredients.
* Businesses include cocoa, coffee, cashew, sesame, rice, cotton and wood products.
* 55c offer values the company at $134.3 million.

Union Agriculture Group:

* Uruguay-based company operated in agricultural projects for more than 30 years.
* Started acquiring land in 2005 to develop its own properties.
* 60c offer values the company at $146.5 million.

Potential new investor:

* Proposal under negotiation.
* Significant minority investment.
* Would need shareholder approval.

NZ FARMING SYSTEMS URUGUAY

Full year ending June 30

Revenue:
* 2010: US$22.5m
* 2009: US$15.8m

Net loss:
* 2010: US$7.9m
* 2009: US$45.9m

No dividend