Fonterra makes A$1.6b takeover offer for Australia's National Foods

12.00pm

Fonterra said today it was making a A$1.6 billion ($1.54 billion) takeover bid for the 82 per cent of Australia's National Foods it does not already own.

Fonterra said it would offer A$5.45 cash per share compared with yesterday's closing price of A$4.67 and a year high of A$4.85 and a low of A$3.92.

The offer is subject to a minimum acceptance provision of winning 50 per cent control.

Fonterra is National Foods' largest shareholder with a 17.2 per cent stake in the company, and has an agreement to acquire an additional 1.3 per cent, conditional on FIRB approval.

Fonterra said on September 1 it was comfortable with its stake in National Foods, Australia's only listed dairy company.

Fonterra chief executive Andrew Ferrier - asked at a Trans-Tasman Business Circle briefing whether the company had hopes of increasing its shareholding - said: "It was a very important stake, a good foothold in the Australia dairy industry and we see that as a real cornerstone piece and we're comfortable with that," he said.

Pressed, he said: "It is always a delicate subject when you get into publicly listed companies. We are quite comfortable with our stake now and it's probably best just to leave it at that."

Fonterra chairman, Henry van der Heyden said the "generous cash offer" would give National Food shareholders "an outstanding opportunity to realise immediately a premium value for their shares".

"The offer price is well above the highest level ever reached by National Foods."

He noted it was at a 16.7 per cent premium on yesterday's closing price.

"It implies highly attractive valuation multiples compared with the overall market," he said.

He said the offer price was at price earnings multiple of 19.6 times forecast 2005 earnings.

Mr van der Heyden said it was Fonterra's preferred option to achieve its objective for entering the national chilled milk and yoghurts markets in Australia.

"These are attractive growth categories, with good growth prospects and solid export potential to Asia."

He said National Foods' business complemented Fonterra's existing strengths in cheese and spreads in Australia.

"This is a full cash offer that represents a unique and compelling opportunity for National Foods' shareholders to realise the best value for their shares now, as opposed to being exposed to the significant risks inherent in National Foods' pursuit of transactions outside of its core business, such as any proposed SPC Ardmona merger."

He said Fonterra had a firm view about the best future direction of National Foods.

"We believe National Foods' best future lies in a focused dairy consumer business - not by diversifying into non-dairy products which has not proven to be a successful strategy for National Foods in the past.

National Foods Ltd said on October 11 it was in talks to take over food processing company SPC Ardmona Ltd, which has a market value of A$380 million ($413.9 million).

National Foods, which flagged its interest in making an acquisition outside its core dairy business earlier this year, said the talks were preliminary and no formal offer had been made.

Mr van der van Heyden said Fonterra was only interested in National Foods, not SPC Ardmona.

"Our bid is conditional on any proposed transaction with SPC not proceeding."

"We think National Foods' Board should permit its shareholders an opportunity to accept our offer so we are urging National Foods to put on hold any decision on any proposed SPC proposal."

Mr Ferrier said the entry into Australia's national milk and yoghurt markets from a leadership position in cheese and spread products would build a strong Australian base for growing significant export revenues to Asia.

"We see this as a logical and sound business direction considering Fonterra is already one of the largest Australian dairy exporters."

He said Fonterra's brands - Mainland, Perfect Italiano and Western Star - were already household names in Australia.

Industry observers said today's Fonterra bid appeared to signal the long-awaited rationalisation of Australia's dairy sector.

Fonterra has repeatedly said it regards both Australia and New Zealand as its "domestic market", and National Foods has 39 per cent market share of Australia's liquid milk and a 37 per cent of fresh dairy products.

Fonterra made it clear in January that it wanted to expand its international operations this year.

Fonterra has tended to buy market share by seeking out companies with well-established consumer brands in bulk milkpowders and speciality ingredients markets.

Fonterra's stake in Australian market-leader National Foods coupled with its 50 per cent holding in Bonlac - Australia's number four dairy company -- means the bid will attract the attention of competition watchdogs.

Dairy Farmers, Australia's second-biggest fresh milk producer behind National Foods, last week said it was selling its 9.2 per cent stake in National Foods, to investment bank Goldman Sachs JBWere Ltd for a reported A$125.6 million ($135 million).

The Australian newspaper said at the time that the sale could have cleared the way for Fonterra to make a takeover bid for NatFoods.

The one other big industry investor in National Foods, European dairy company, Danone, sold its 10.1 per cent stake of National Foods in March.

The bid is conditional on National Foods not announcing or proceeding with any merger or similar arrangement with SPC Ardmona or other parties.

It was also conditional on regulatory approvals, no major contracts being terminated; no decline in the S&P/ASX 200 Index below 3250; no material adverse change in the business of National Foods; no material acquisitions, divestments or joint ventures.

Fonterra said it believed the only likely competition issue in Australia was in Western Australia and this would be resolved through the sale of market milk assets of the merged group in Western Australia.

Fonterra had had a preliminary discussion with the Australian Competition and Consumer Commission (ACCC).

In New Zealand, Fonterra said it believed any issues arising from the acquisition of National Foods' yoghurt and dairy dessert operations could be satisfactorily resolved in talks with the Commerce Commission.

- NZPA