By PHILIPPA STEVENSON agriculture editor
Graeme Hart has got a bargain in New Zealand Dairy Foods.
An independent valuation says the domestic dairy marketer is worth between $1.75 and $1.98 a share. Hart's Rank Group paid $1.75 a share for Fonterra's half of the company.
Investment bankers Cameron & Co's report
also suggests that Fonterra was willing to sell out well below par.
Last month, Fonterra accepted $1.70 a share, or $119 million, for its stake in the company, which it is required by its formative legislation to sell by October.
The move kneecapped the Dairy Foods board's efforts to manage the sale and also do right by the other shareholders, about 6200 North Island dairy farmers.
The price was later set at $1.75.
Cameron & Co said it had "no reason to believe the sale process was not well run", nor that an alternative would have resulted in a higher offer. "However, the prospects of a higher offer from [other interested parties] was now unlikely given Fonterra's acceptance of the Rank offer."
With the rug pulled, the Dairy Foods board, chaired by former Dairy Board chairman John Storey, yesterday emerged as heroes of the farmer shareholders.
A company statement, sent to shareholders with the Rank offer and Cameron & Co report, showed directors cranked Rank's bid up to $1.75 in exchange for recommending the offer and selling their own shares.
In a letter to shareholders, Storey cited the raised offer as one key reason for farmers to accept the Rank offer. The others were that it fell within Cameron & Co's valuation range, the weight of the investment banker's considerations favoured selling, and "Fonterra's irrevocable acceptance of Rank's offer, which effectively passes control of Dairy Foods to Rank".
Storey said Fonterra had made it clear it believed $1.70 was the best price obtainable, and acceptance was in its best interests.
His board was uncomfortable with the price being below Cameron & Co's value range particularly in the light of Dairy Foods' strong recovery in the past year.
"We made that point to Rank," he said.
Cameron & Co forecast earnings before interest and tax of $25 million this year, and $36 million next year.
* Brian Gaynor will analyse NZ Dairy Foods in Weekend Business tomorrow.
