Fonterra slates National Foods

Graham Stuart

Takeover target National Foods came in for a stinging attack yesterday from Fonterra strategy director Graham Stuart.

In an aggressive move aimed at lowering market expectations of what Fonterra is prepared to pay, Stuart painted a bleak picture of the listed Australian dairy company.

In a presentation to brokers and media in Melbourne, he produced research which showed National Foods was losing market share in all its major consumer product categories, including its key Yoplait yoghurt brand.

He said it was reliant on the slow-moving fresh milk commodity market for 60 per cent of its revenue and had largely run out of opportunities for growth.

Fonterra has launched a $1.5 billion bid for full control of National Foods - offering A$5.45 a share.

That offer was rejected as hostile by the National Foods board and speculation in Australia that Fonterra may raise its offer has seen the share price hovering at about A$5.75 for the past three weeks.

Stuart's presentation, which was lodged with the ASX as a Second Supplementary Bidders Statement, succeeded in spooking some investors as shares dropped 7Ac before climbing back to close at A$5.70 - 3Ac down for the day.

Stuart stopped short of saying Fonterra would not lift its offer price, but he left investors in little doubt that Fonterra did not believe it was buying a company in peak condition.

He rebuffed earlier suggestions by National Foods management that an exciting range of new products would drive growth next year.

"Innovation is not one of National Foods' strengths," he said.

Where there had been innovation, it had largely been around packaging and labelling.

National Foods had improved its results in the past year by cutting marketing and advertising spending but this was now proving costly as market share fell.

National Foods corporate affairs chief Ian Greenshields said the presentation had made very selective use of data.

He said using market research based on supermarket sales did not show the full picture.

"In the flavoured milk category only 22 per cent of our sales are through grocery, the rest is through convenience stores," he said.

This had been an attempt to justify a "low-ball offer".

If National Foods achieved its target of 14 per cent growth next year it would have delivered double-digit growth for six years running.

Stuart also restated Fonterra's belief that the National Foods share price was already inflated by a takeover premium, before the launch of the bid.

Asked why Fonterra wanted National Foods if it was in such bad shape, Stuart said Fonterra was the only company in a position to extract large-scale synergies.

He refused to put a figure on those synergies. Analysts have suggested that they may be worth up to $50 million a year.

Fonterra's offer is due to close on December 21.

 

FONTERRA'S OFFER

A$5.45 a share for full control.

Yesterday's share price: A$5.70.

The offer closes December 21.