Giant move for Fonterra

By LIAM DANN


Fonterra launched its dramatic $1.6 billion bid for National Foods after a clash with the Australian company's board over strategy, the dairy giant said yesterday.

Fonterra is unhappy with the Australian company's plan, leaked this month, to merge with canned fruit company SPC Ardmona.

Fonterra director of strategy and growth Graham Stuart said previous attempts to diversify National Foods away from dairy had not been successful.

He said Fonterra, the biggest shareholder in National Foods, had made its position clear to the board but had no directors on that board.

"It's deja vu. We've seen this before and it hasn't worked," Stuart said, referring to an early National Foods move into the soy milk market.

"We believe the best growth prospects for this company are in dairy."

The National Foods board wasted no time in publicly rejecting Fonterra's bid, making it clear that the takeover was considered hostile.

"The unsolicited and conditional offer of A$5.45 a share ... significantly undervalues the company given its financial track record and strong earnings prospects," it said.

National Foods, Australia's largest listed dairy company, said it also planned to continue with the SPC merger talks despite Fonterra's offer being conditional on them being cancelled.

A National Foods and SPC merger is unlikely to be completed before the end of the year, giving shareholders time to make up their own minds.

Meanwhile, National Foods shares soared 92Ac closing at A$5.59, 14Ac higher than the offer amid hopes that National's bellicose stance would force Fonterra to pay more.

There was even speculation that some investors were expecting a rival bid by Graham Hart's Burns Philp. Burns Philp executives could not be reached for comment.

Stuart described the National Foods response as "anticipated". Fonterra is expected to press on regardless, lodging the bid formally next week.

Stuart also said the sale by Dairy Farmers of its 9.2 per cent stake last week also made the decision to bid easier, as it removed the last big investor capable of blocking Fonterra from reaching a 90 per cent stake.

Stuart said Fonterra was comfortable as a majority stake-holder if there was only partial acceptance of the offer.

Fonterra chief executive Andrew Ferrier is in Australia trying to sell the takeover deal to fund managers and other key shareholders.

Fonterra chairman Henry van der Heyden said National Foods shareholders were getting "a generous cash offer".

He said Fonterra would look to develop synergies between National Foods' fresh milk and yoghurt business and its own cheese and spreads business.

"It complements our existing position and provides an ideal entry into the fresh milk market."

It was not expected that there would be any major regulatory concerns, although there were issues to be worked through with the Australian and New Zealand competition watchdogs.

Fonterra appears to have the support of New Zealand dairy farmers. Dairy Farmers of New Zealand chairman Kevin Wooding called it a bold and positive decision.

The Fonterra offer closes in mid-December.

- AGENCIES