Mark Peart: National Foods - pot of gold or poisoned cup?

Brinkmanship is a common feature of any corporate takeover these days.

Company A vies with Company B to take over Company C, or Company X pursues Company Y, which may be reluctant at first to entertain the offer, but later accepts if the pot is sweetened sufficiently.

I mention this having written in this forum in January about the tussle that was going on then between Fonterra and San Miguel for control of Australia's National Foods.

It struck me at the time that this battle was a classic demonstration of breast-beating corporate behaviour - my pockets are deeper than your pockets kind of thing. Whoever blinks first forgoes the pot of gold at the end of the rainbow.

I know the subtext was that this was a golden opportunity for Fonterra to gain a major strategic foothold in the Australia dairy foods market. But I'm a columnist, so I won't altogether let the facts get in the way of a good story.

As we know, Fonterra and San Miguel were locked in a gladiatorial battle for control of National Foods, and in this part of the corporate world, at least, the stakes were seldom higher.

Offers and counter-offers were the order of the day, and in New Zealand Fonterra shareholders looked on as one with baited breath to see what their directors would do next.

I suggested in January that the Kiwis faced an uphill battle to brush aside the Philippines-based brewing food and beverage group, particularly when San Miguel was the preferred bidder and National Foods regarded Fonterra's foray as downright hostile.

Fonterra directors were asking their shareholders to have cast-iron trust in them to do the right thing and safeguard their interests. The record reflects that the ball bounced kindly in favour of Henry van der Heyden, Andrew Ferrier and co.

I wondered how long it would take for the New Zealanders to overcome that hostility to a point where it was wholly productive under new ownership; how much it would have to pay for the privilege; how much the brinkmanship would affect bottom-line payouts to Fonterra's farmer-shareholders, and whether it was all really worth it.

These were all burning questions Fonterra shareholders would have been mulling, even though they broadly supported the board's Australian strategy.

As history now shows, Fonterra walked away from National Foods when it realised San Miguel was hell-bent on acquisition.

It reaped a war chest of $268 million in the process, and discovered there were other opportunities worth looking at within the strategically important Australia dairy industry. And that there is life after National Foods.

The powers-that-be at Fonterra would no doubt have allowed themselves a modicum of smug satisfaction at a report out of Singapore last week.

The report, from the Bloomberg financial news agency, said shares in San Miguel were tipped to slide on concerns the firm paid too much for National Foods. Analyst Nicholas Yeo said people were dubious San Miguel could create value out of National Foods, considering it paid $1.59 billion for the company.

San Miguel boss Eduardo Cojuangco's offer of A$6.40 a share valued National Foods at 24 times earnings per share, based on analysts' forecasts for the year to June 30. It was the stock's highest valuation since 1997. National Foods' share price averaged 21 times earnings in the 12 months before the takeover battle.

That news might have encouraged Fonterra's chieftains to sup on something slightly more up-market than beer in quiet celebration, while muttering, "There but for the grace of God go we."

* Mark Peart is an Otago-based freelance writer.