National Foods offers cash sweetener

Australian takeover target National Foods yesterday offered shareholders a big cash sweetener if they turn down New Zealand dairy giant Fonterra's "grossly inadequate" offer.

The target company statement put the company's value at A$6.11 to A$6.65 a share - compared with Fonterra's bid of A$5.45.

Managing director Peter Margin said it had been "pretty easy" to bat the offer back.

Fonterra is bidding A$1.3 billion ($1.4 billion) for the 81 per cent of the company it does not own.

National Foods announced a capital return and special dividend of 92Ac a share in March next year - if Fonterra's bid is unsuccessful.

It says the payment is an unexceptional part of its long-term capital management programme.

Fonterra immediately attacked the company for not getting an independent valuation of its worth - a rarity for a listed Australian company in its position.

Margin was grilled on the topic at a media briefing yesterday.

One of the first questions: "You don't think it's fair to shareholders that they get an objective view of their own company?"

Margin: "I think the right thing to do for shareholders is to have an appropriate value on the business."

Quizzed further, his key theme was the board's "unparalleled" knowledge of National Foods.

In a statement, Fonterra expressed "surprise" at the lack of an independent valuation and chief executive Andrew Ferrier said retail shareholders in particular would have benefited.

Privately, the language in the Fonterra camp was stronger.

"The only reason you don't get an independent report is if you know you won't like the answer."

Perennial Value Management is a 5 per cent shareholder in National Foods.

On Fonterra's prospects, deputy portfolio manager Hugh Giddy said: "My guess is that they don't have to go much above A$6 - maybe a little bit over A$6, but not that much.

"I would be very surprised if they can get it below A$5.70."

At sharebroking firm Austock, analyst Paul Jensz predicted a highest bid from Fonterra of A$5.72.

Also disclosed in yesterday's document and briefing:

* National Foods puts the annual synergies to be reaped by Fonterra after a takeover at A$40 million a year after initial one-off implementation costs of A$55 million.

* A change of control would give Woolworths the right to terminate National Foods' annual supply of 200 million litres of milk.

However, Margin said it was "highly unlikely" any termination would happen.

National Foods shares closed at a new high yesterday of A$5.86, up 7Ac or 1.2 per cent.

BATTLE LINES

National Foods says shareholders should say no to Fonterra's offer.

It values its own shares at up to A$1.20 above the offer price.

Fonterra says National Foods should have obtained an independent valuation.