Fonterra's target gets higher price tag

Fonterra takeover target National Foods now has a price tag of at least $2 billion, analysts say.

They were commenting yesterday on the rival bid - of A$6 a share - by Philippines brewer San Miguel, which raised the stakes significantly for Fonterra chief executive Andrew Ferrier over the New Year break.

The latest offer, which values National Foods at A$1.8 billion ($1.96 billion), has raised concerns among the dairy co-op's farmer shareholders that it may pay too much.

Ferrier, who returns from his holidays in Canada next week, will have to work fast to decide whether Fonterra can make a profit from National Foods at that kind of price.

Dairy Farmers of New Zealand chairman Kevin Wooding said shareholders were naturally cautious about Fonterra making an investment which equated to about $180,000 a farmer. But they were prepared to trust the board of directors if the numbers stacked up.

"If it's part of the strategy, that's fine, but they need to be sure they can get a return in the short to medium term," Wooding said.

He said Fonterra's consumer business New Zealand Milk had not performed well in the past few years and farmers were expecting this deal to give it a boost.

If Fonterra was to walk away from the takeover bid and sell its 19.9 per cent National Foods stake to San Miguel, it could net about $40,000 for every farmer shareholder.

Analysts said there might be other options for Fonterra in Australia but this was the one that made the most sense in terms of synergies.

Fonterra has so far refused to comment on the San Miguel bid.

A spokesman has said it had been noted and the company would make its response when it was ready.

Australian takeover rules require Fonterra to make a call on increasing its offer price - now A$5.45 - by January 24, seven days before its offer is due to close.

San Miguel has a month to lodge its formal bidder's statement.

Even if San Miguel is trumped by Fonterra, the brewer can walk away from the bid and still make money.

That is because National Foods has entered into a "deed of understanding" to pay San Miguel $18 million if its friendly takeover is not successful.

* Ratings agency Standard & Poor's has cut the outlook on National Foods' BBB corporate credit rating, from "positive" to "developing", following the San Miguel bid. The rating was placed on Creditwatch with positive implications on October 28 last year, after Fonterra's initial bid.