Rural offer beats valuation

Rural services company Wrightson's takeover offer to shareholders of Williams & Kettle is at least 8 per cent higher than an independent valuation.

The offer to 4000 Williams & Kettle shareholders, mailed out yesterday, is $4.70 a share or, for those entitled, $2.70 plus one new Wrightson ordinary share.

Independent adviser Grant Samuel values the shares at $3.91 to $4.35. That valuation excludes any consideration of synergy benefits estimated at between $5.5 million and $6 million a year.

The cost of achieving these benefits was estimated at between $3 million and $4 million over a 12- to 18-month period.

"There is considerable execution risk in securing these benefits, as rationalising competing businesses is not always successful," says Grant Samuel.

Despite Wrightson's offer being considerably higher than the valuation and the risks identified with rationalisation, Williams & Kettle's independent directors made no recommendation to shareholders either way.

The offer is conditional on achieving 90 per cent acceptance from Williams & Kettle shareholders.

The independent directors said that condition could not be satisfied unless major shareholders H&G and the Cushing family agreed to accept.

Accepting the offer now, they said, would remove the opportunity for shareholders to "consider other developments".

The directors said Pyne Gould Guinness and Fonterra might repeat earlier bids to buy, either for a preventive 10.1 per cent stake or, in the event of a failed bid, a full offer.

The Williams & Kettle recommendation appears to be "wait and see".

The Wrightson offer closes on February 28.

Wrightson chairman Keith Smith said the offer price, which values the company at $105 million, was significantly higher than the share value before the 19.9 per cent stake Wrightson acquired last month.

"Our offer delivers a 52.5 per cent premium to the weighted average share price over the six months prior to Wrightson's stand in the market for Williams and Kettle shares."

Smith tried to apply pressure to shareholders, stressing speed was of the essence to maintain the support of staff and clients, "otherwise a price of $4.70 cannot be justified".

He said synergies from the merger would mainly be in the back office and sought to reassure Williams & Kettle staff.

"We also intend to preserve and build upon the strengths of Williams & Kettle in the districts where it is well known and has a long heritage."

Williams & Kettle, in response, issued a target company statement.