Farmers nervous about National Foods price

A higher bid for National Foods by San Miguel means New Zealand dairy farmers will be getting increasingly nervous about Fonterra continuing to pursue the Australian company, says Waikato Federated Farmers president John Fisher.

San Miguel yesterday outbid Fonterra for a second time in their marathon takeover battle for National Foods.

The Filipino food and brewing group thumped A$1.9 billion ($2.1 billion) down on the table, trumping Fonterra by almost A$60m and surprising many who thought it could not justify a higher bid.

The new bid followed the release of a "conservative" analysis from Fonterra that payouts could be cut by as much as $11,800 per farmer if its bid was successful. However, Fonterra said this estimate did not include a number of cost savings and revenue benefits from a merger and that a slightly higher payout was possible.

Mr Fisher, a Cambridge dairy farmer, said only the Fonterra board would be fully aware of "what the deal is really worth to us".

But he said farmers would be concerned about what they would gain if Fonterra trumps the latest San Miguel offer.

"There will be many more farmers that will be sceptical about whether the purchase of National Foods will be of benefit to us if we have to up the price even more."

Mr Fisher believed farmers would continue to have faith in the Fonterra board.

"But if the farmers just get a feeling that we're going to be worse off in the short term for a long-term gain, I don't think there's many farmers that'll want to wear that at the moment. They'll want to see at least a neutral impact on payout or positive right from the start."

At A$6.40 a share, San Miguel's bid is at the top end of NatFoods's target valuation range of A$6.01 to A$6.55 - a level Fonterra chief executive Andrew Ferrier has described as "outrageous" and "completely off the charts" only to raise his own bid to within that range in early March.

Analysts said San Miguel's offer was rich and based more on strategic ambition than immediate financial returns. Opinion was divided on whether Fonterra could afford or would want to respond with an even higher bid.

San Miguel chairman and chief executive Eduardo Cojuangco, a former colleague of disgraced ex-Philippines President Ferdinand Marcos, said the higher bid showed how committed he was to growing San Miguel's business in Australian dairy products.

"The acquisition of National Foods is an important step towards the realisation of our ambition to expand our presence in beverages and food in selected countries in the Asia Pacific region," Mr Cojuangco said.

Fonterra's directors are expected to decide whether to lift the bid within the next week.

Directors meet next Tuesday for a regular board meeting and are expected to discuss both the National Foods bid and the first payout forecast for the 2005/06 year.

Analysts said Fonterra can call on much bigger cost savings and revenue gains from a takeover of National Foods than San Miguel, which does not own dairy assets in Australia.

The size of these synergies is seen as crucial to the decision Fonterra will take. Analysts believe at least A$40m of savings can be made by combining. Some analysts believe Fonterra could pay over A$6.50 a share without cutting farmer payouts, but others say it is already stretched.

"I don't think they are going to overpay," said Austock analyst Paul Jensz. "I think they'll withdraw gracefully."

- NZPA