National Foods price edges up

National Foods climbed to a fresh high yesterday as investors waited for New Zealand dairy giant Fonterra to top Asian colossus San Miguel's cash offer of A$1.8 billion ($1.96 billion) for the milk processor.

San Miguel's friendly bid of A$6 a share beat an existing offer by Fonterra of A$5.45, but investors have signalled they want at least 5.5 per cent more.

Shares in Australia's biggest milk processor closed A2c up at a record A$6.33, a gain of 35.5 per cent since October 27, the day before Fonterra unveiled its unsolicited bid, valuing National Foods at A$1.62 billion. Fonterra already owns 19 per cent of National Foods.

"The premium over the San Miguel price is certainly indicating the market expects Fonterra to come back with something more," said David Halliday, associate director of Macquarie Equities.

Fonterra, which makes Mainland cheese and Anchor butter, wants a bigger slice of the A$11 billion dairy market in Australia, where it has about 14 per cent of national sales.

The world's biggest dairy exporter says it wants National Foods' yoghurt business to fix a weakness in its own product mix.

Analysts say San Miguel, the biggest food and beverage group in Southeast Asia, wants National Foods for its export potential.

National Foods sold about A$1.3 billion of Pura milk, Yoplait yoghurt, King Island gourmet cheese and other products in fiscal 2004.

The company had estimated cost savings to Fonterra at about A$40 million.

Phillip Kimber, food and retail analyst at Goldman Sachs JB Were, said Fonterra's A$5.45-a-share bid incorporated only about 26 per cent of the cost savings it would get from its target.

He said San Miguel's savings would be lower, but it could likely pay a lot more for National Foods.

"Assuming the mid-point of our synergy range for San Miguel of A$10 million, we estimate that a transaction becomes EPS neutral at A$6.61," Kimber said in a report.

Fonterra's offer closes on February 1. San Miguel has yet to issue official bid documents - it has a month in which to do so - and bankers said it could acquire National Foods in about two months if all went smoothly.

Although analysts said they expected a counter offer, they did not expect Fonterra's next move to be a knockout blow.

"They're the sort of company that would come back with A$6.05," said an analyst who declined to be named.

When San Miguel made its move last week, National Foods board recommended to shareholders that they accept the offer.

Analysts said at the time that Fonterra's hopes of acquiring the company could be scuppered if it did not lift its offer - something Fonterra boss Andrew Ferrier did not rule out early last month.

A Fonterra spokesman would not be drawn on any possible timeframe for a response other than pointing out "the bidder's statement is to be lodged within a month".

But an analyst said Fonterra's position looked tenuous at best. "I think A$6 will get it."

- REUTERS