Extension of Fonterra bid a 'no brainer'

Andrew Ferrier says he will take his time to see if the National Foods takeover numbers add up. Picture / Richard Robinson

Fonterra's decision last week to extend its bid for Australia's National Foods for a third time was a "no brainer", says chief executive Andrew Ferrier.

The dairy co-operative is not about to be pressured on the takeover and will take its time to find out if the numbers add up - or don't, as the case may be.

"Getting a chance to look at the books was a fortunate turn of events," Ferrier said. "It allows us to increase the certainty on our valuations."

National Foods is only letting Fonterra do due diligence because the dairy giant has to lift its A$5.45 ($6) a share bid if wants to succeed.

A rival bid of A$6 by Philippines brewer San Miguel killed off any chance of grabbing a bargain.

Fonterra could now be looking at a cost of almost $2 billion to take out National Foods - depending on how far the bidding war goes.

Ferrier admitted that making the call on how much the company could afford was taking a lot of work.

But for a man who returned from his holidays to find the price had leaped by hundreds of millions of dollars, he seemed pretty relaxed.

"Emotion doesn't help," he said. "In the end it does become a reasonably straightforward up and down decision."

There was a price where Fonterra could be very confident that the right move was to buy, Ferrier said.

Beyond that, there was a price at which Fonterra should walk away.

Somewhere in the middle is a grey area.

"That's the tricky part," he said. "There is going to be a judgment there, but that is what we get paid to do. We have a lot of strong players in our management team and a lot of good business people on our board."

Sometime soon - probably before March 1 when Australian Stock Exchanges rules require Fonterra to declare its next move - management will make a recommendation to Henry van der Heyden and his board of directors.

"The board will probe hard to be sure we've done our homework," Ferrier said.

As to what the final price points would be and whether Fonterra would lift its bid, Ferrier was giving nothing away.

"People keep asking us and people get frustrated but we can't play out our strategy in the public domain."

Despite being trumped, Ferrier still believed that Fonterra's original A$5.45 offer was fair.

"It needed someone with a unique perspective to come in over the top of that," he said. "San Miguel's perspective ... I would call unique."

They were essentially a beer company looking for new opportunities, he said.

Since launching its bid, San Miguel's ownership structure has had a big shake-up.

Japan's Kirin Brewery has upped its stake to 20 per cent and the Philippines Government has said it will sell its 40 per cent stake.

But Fonterra isn't paying too much attention to all that.

"We can't predict what they'll do. We're looking at what works for Fonterra."

The point that Ferrier was most keen to make to his shareholders was that Fonterra would not stand still while the takeover played out.

He was proud that restructuring of the ingredients business - Project Jedi - was largely complete.

He said the business was in good shape going into what could be a difficult couple of years, as commodity prices fell and the strong dollar started to bite.

He was also excited about the revival of the consumer products business New Zealand Milk.

The arrival of new boss Sanjay Khosla had re-energised that business, Ferrier said.

In the past Fonterra had been "good at branding, but not great," he said. "Sanjay's got the team really focused on growing the brands."

It was here that Ferrier revealed his only hint of emotion about the takeover bid.

A Fonterra-owned National Foods would be part of the NZ Milk business. It was clear that Ferrier would love to let Khosla loose across the Tasman.

He has a lot of faith in the Indian-born marketing guru - the man who revitalised an old-fashioned brand of tea, Lipton, as a hip, chilled beverage for the youth market.

Khosla "lives and breathes brands", Ferrier said.

"He is focused on brands as a way to get into consumers' hearts."

NZ Milk needs a strong base in Australasia from which to launch into Asia.

Ferrier was confident that was achievable even if the company walked away from the takeover next month.

But he admitted a successful bid would strengthen Fonterra's position considerably. "If we get National Foods, it changes things."