Blue Sky Meats takeover: Offer not reasonable, report says

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An independent adviser's report on the merits of a takeover offer for all the shares of Blue Sky Meats has described the offer as "unreasonable".

BSM, which also trades under the brand Blue Sky Partners, operates a meat processing plant near Invercargill.

Last month, Southern Lamb Investments officially made a full takeover offer for all of the shares at $3 per share.

Private New Zealand-owned investment bank and corporate finance advisory firm Campbell MacPherson said its assessed valuation range was $3.12 to $3.67 per share with a mid-point of $3.40 per share.

The $3 offer allowed shareholders to release cash for their investment in BSM and represented a premium of 131 per cent above the most recent traded price on the USX prior to the announcement of SLI's offer which was $1.30 per share, the report said.

BSM's projected financial scenario demonstrated strong profitability over the FY22 to FY26 period.

However, it was also projecting significant capital expenditure requirements of about $38 million over the same period which would impact the company's medium-term free cash flow.

There was no certainty the post-offer board of directors would continue with the 5c per share cash dividend policy evident in recent years, it said.

SLI is owned by Andrew Lowe Trustee Company No 2 Ltd (ALTC) and ODFI Ltd.

ALTC is an existing BSM shareholder, with 18.01 per cent of the voting securities on issue, and ODFI is owned by the shareholders of H W Richardson Group Ltd.

HWR is also an existing BSM shareholder with 16.74 per cent of the voting securities on issue.

The offer has a minimum acceptance condition whereby SLI must receive acceptances that would result in SLI holding more than 50 per cent of the voting securities in BSM.

That condition was satisfied on March 30 and the offer had been declared unconditional. The offer closes on May 6 unless extended by SLI.

NZ Binxi (Oamaru) Foods Ltd, which held 19.84 per cent of the voting securities on issue, was the largest shareholder.

It had advised its intention was not to accept the offer. In that instance, the maximum shareholding SLI was able to obtain would be 80.16 per cent which was below the 90 per cent threshold required to trigger the compulsory acquisition provisions under the Takeovers Code, the report said.

During November 2016, NZ Binxi, a Chinese-controlled company, made a bid for BSM at $2.20 per share, but transaction was not completed.

An independent committee set up to consider the offer believed SLI's offer undervalued Blue Sky.

On a standalone basis, those valuation factors would tend towards the committee recommending shareholders reject the offer, it said.

However, it was also mindful the offer was now unconditional and SLI had received acceptances to the offer for 50.35 per cent of shares.

That meant SLI would become the controlling shareholder.

The committee considered there was a reasonable prospect that SLI would acquire between 50.35 per cent and 80.16 per cent of the shares.

As BSM's new majority shareholder, SLI would be able to effectively control the composition of the board, the strategic direction of the company, dividend policy and future capital raisings.

The decisions made would significantly affect the future value of the shares held by shareholders who rejected the offer and shareholders' ability to realise that value.

Hence, the committee did not make a recommendation that shareholders accept or reject the offer; rather, it said the key question for shareholders was whether to remain invested in a company controlled by SLI.

There were potential benefits and risk of doing so, it said.