Frucor directors bow to Danone

By ELLEN READ

Groupe Danone is on track to gain control of Frucor Beverages, but whether as sole owner or a majority shareholder is far from clear.

Frucor's independent directors yesterday recommended to shareholders that they accept Danone's offer of $2.35 a share despite strenuously rejecting the French company's advances as miserly throughout the bid process.

Analysts applauded the change of heart, saying it was the only sensible option under the circumstance: no rival bidder has emerged, Danone will not raise its price and Frucor's share price would drop if Danone withdrew.

Frucor shares closed yesterday at $2.31.

Danone's $294 million offer - which expires on January 18 - is conditional on its receiving 90 per cent of Frucor shares. Under the Takeovers Code, it can then make a compulsory acquisition of all remaining shares.

Frucor's independent directors initially opposed the bid, saying it was unfair and too far below the $2.53 to $2.96 a share valuation range in an independent appraisal by Grant Samuel and Associates.

However, Grant Samuel has since lowered its valuation to between $2.38 and $2.80 a share, mainly because of downgraded earnings forecasts for Frucor's Australian operations.

Aggregate forecast earnings for the year to June 30 had not materially changed, with improved earnings in New Zealand offsetting reduced earnings from Australia and slightly higher losses from Britain and the rest of the world.

Of more significance are revisions to the longer-term estimates of business costs in Australia and the rate of growth of the energy drink market in Australia.

The report outlined three possible outcomes from the current offer:

* Danone achieves 90 per cent and moves to compulsory acquisition of the remaining shareholdings.

* Danone reduces the minimum acceptance level to at least 50 per cent. Under the Takeovers Code Danone has 14 days after the closing of the offer to waive the 90 per cent condition.

* The Danone offer lapses and Danone does not make a new offer for the outstanding shares, or Danone makes a new offer on the same or different terms.

Analysts say Danone will reach its 90 per cent target, citing the 36.7 per cent Bain stake, the independent directors' personal holdings and 30 per cent estimated to be held by arbitrage funds.

The independent directors - Ian Donald, Peter Bush and Graham Evans - hold 0.14 per cent between them.

However, Mr Donald, the chairman of Frucor's independent directors, said Danone could yet fall short of its target.

His view is that although Danone will acquire "significantly more than 50 per cent", it will not reach 90 per cent ownership because there "are a number of institutions who still think the offer is too light".

Danone's executive vice-president for Asia-Pacific, Simon Israel, would not be drawn on that, or on the likelihood of waiving the 90 per cent target. He said only that he was positive Danone would reach 50 per cent ownership.

Danone remained interested in a full takeover, he said, adding it might not be in the interests of minority shareholders to remain with Frucor once Danone took charge as its plans for the company's expansion into Asia might involve higher risk than the company's present path.

Mr Israel said that if Danone was successful in its bid it would talk as soon as possible with Frucor management about plans for the company. He said it would remain a New Zealand-based firm.

Forsyth Barr head of research Rob Mercer said it would be a big punt for shareholders if they gambled on Danone's waiving the 90 per cent target.

He said Frucor's share price was likely to fall below $2 a share if the offer failed. He added that his firm had changed its position and now recommended customers accept the offer.

Danone was "a good fit with Frucor and the difference to [Frucor's] future between them coming on the register and not is quite wide", Mr Mercer said.

WestpacTrust currency strategist Jonathan Bayley said a successful offer would add support to the New Zealand dollar as Danone would have to buy the currency in the market to pay for the purchase.