Frucor directors reject French bid

11.20 am

As expected, Frucor's independent directors today rejected a takeover offer from French giant Groupe Danone.

Independent valuation by Grant Samuel put a price of $2.53-$2.96 per share on the beverages company.

Danone, the world's biggest water bottler, launched a $294 million bid for Frucor last month, offering $2.35 a share for all of the company.

The offer will remain open until December 7.

Since then, Frucor's share price has soared, from $1.88 to a high of $2.47, before closing yesterday at $2.45. They were untraded today.

Analysts have suggested the Danone offer is too low, with the average valuation of the company before the takeover offer sitting at $2.58 a share, although some have since raised their valuations.

Frucor's major shareholder, Pacific Equity Partners, has already accepted the offer for its 38 per cent stake, but it is entitled to receive more money if Danone raises its offer.

Danone's offer is subject to it buying more than 90 per cent of Frucor shares.

The independent directors said there were a number of reasons they recommended shareholders and noteholders did not accept Danone's offer.

"(Investment banker) Grant Samuel has assessed the value of Frucor shares in the range of $2.53-$2.96 with a midpoint of $2.74 and advise that the offer for the shares is neither fair nor reasonable."

Grant Samuel indicated that the offer for Frucor's convertible notes was fair, because the Danone offer for the convertible notes is also conditional on 90 per cent acceptances from shareholders (which the independent directors do not recommend), there was little practical point in noteholders accepting at this stage, the independent directors, chaired by Ian Donald said.

"Furthermore, if a subsequent higher offer is made for the shares, it is possible that an increased offer will be made to noteholders."

The directors said advice received by the independent directors from financial advisers Credit Suisse First Boston, who had been mandated to find a counter bidder, and feedback from shareholders and analysts was consistent with the Grant Samuel view that fair value for Frucor shares is well above the current offer price of $2.35.

"The independent directors believe that Danone and other potential purchasers may have significant opportunities for synergistic benefits from an acquisition of Frucor and that these benefits have not adequately been taken into account in the Danone offer," they said in their letter to shareholders.

"Although Bain and its related entities have accepted the offer in respect of their shareholding of 37.6 per cent of Frucor's shares, they will also benefit from any increase in the offer price from Danone."

The independent directors said they had carefully considered the Grant Samuel report and advice from CSFB and concluded that the current offer is below what they consider to be the true worth of Frucor.

The independent directors said they would not be accepting the offer in respect of their own shares.

The Grant Samuel report said there should be a premium for control of Frucor.

It said in some takeovers there were factors that might suggest that even if an offer was not fair, it was still reasonable and that shareholders should consider accepting even though it is not fair. But this was not such an instance.

Under the Takeovers Code, Danone is unable to acquire more than 19.9 per cent unless it acquires more than 50 per cent after having made an offer to all shareholders.

With Bain and Pacific Equity having agreed to sell their 37.6 per cent stake, Danone only requires 12.4 per cent of the remaining shares in Frucor to accept for it to reach the 50 per cent threshold of the Takeovers Code.

It could then declare its offer unconditional if it elects to reduce the current minimum acceptance condition of 90 per cent.

The fact that Bain is willing to accept less than the estimated full underlying value for its shares is not a reason for the remaining shareholders to also accept less than full value, said Grant Samuel.

If Danone increases the offer price Bain and any other accepting shareholders will receive the increased price.

In the 16 days since Danone announced its bid, 31.5 per cent of the free float (defined as total shares on issue less those held by Bain and associates) had traded at prices between $2.38 -$2.46 per share and that was seen as a very high proportion.

Grant Samuel said because buyers had paid more than Danone's bid price, it suggested they were expecting Danone to up its offer. It was unlikely these buyers would accept $2.35/share.

Accordingly, Grant Samuel said Danone was unlikely to reach the 90 per cent conditional threshold and would probably reduce the threshold condition to 50 per cent prior to the offer closing.

Although no alternative bidder had yet emerged for Frucor, Danone was likely to match or better a higher bid should one emergy, Grant Samuel said.

There was a reasonable chance Danone would get 50 per cent control and if it made that the condition of its bid, then liquidity in Frucor would contract and that would affect Frucor's future share price.

Having achieved a 50 per cent shareholding Danone could acquire a further 5 per cent in any 12 month period either on market or by private treaty.

Danone could also then make a partial offer on a pro-rata basis.

If Danone acquired 50 per cent, it would have control over Frucor and would be likely to implement some if not all of its future plans for Frucor.

These plans may include using Frucor 's distribution systems in New Zealand and Australia to distribute Danone product, or distributing Frucor's product in south east Asia and China through its own distribution network.

Grant Samuel said it could only speculate on Danone's plans but said the result was likely to be positive for Frucor and remaining shareholders given Danone 's well established global presence and that should increase Frucor's value.

Grant Samuel said if the offer lapsed, Frucor's shares were likely to trade below the current market price and possibly below $2.35.

Mr Donald said CSFB was in discussion with more than one possible counter bidder.

Frucor is forecasting a 37 per cent jump in net profit to $16 million in the year to June.

Earnings before interest, tax, depreciation and amortisation (ebitda) were seen jumping 25 per cent to $32.5 million from 2000/01's $26.0 million -- despite ongoing losses in Britain.

Operating revenues were seen rising to $272.5 million from $228.4 million.

Frucor shares lifted seven cents to $2.52 after the directors' statement.

- NZPA