Why National Foods looks so tasty

Graham Stuart says the offer would boost earnings from year one.

Fonterra has lifted its forecasts of gains from a full takeover of National Foods despite raising its offer for the Australian dairy company to A$1.44 billion ($1.56 billion).

Fonterra director of strategy and growth Graham Stuart told the Business Herald its new bid of A$6.20 a share for full control of the Australian firm would be "earnings accretive from the first year".

This is a sharp turnaround on the co-operative's position last October when it launched its initial A$5.45 a share bid. Then Stuart said the acquisition would boost earnings after two years.

Fonterra made its new bid for National Foods, maker of the Yoplait branded yoghurt, last week to trump a rival offer, now worth A$5.90, from Philippines brewer San Miguel.

The co-operative, already holding a near 20 per cent stake in National Foods, is making its latest offer in two steps.

It will first offer A$6 a share, but will lift the payout to A$6.20 if it gets 90 per cent of the shares on issue.

The A$6 a share bid values National Foods at A$1.78 billion and puts the cost of Fonterra lifting its stake to 50 per cent at around A$550 million.

The A$6.20 a share bid values the company at A$1.84 billion.

The offer carries the recommendation of the National Foods board as it falls within directors' estimates of A$6.01 to A$6.55 a share.

Stuart said the brighter outlook followed National Foods indicating last year that it expected net profits in the year to June of at least A$78 million, up from A$68.7 last year.

And now the co-operative had run its eyes over the National Foods books, it was more certain about the cost savings that would come from combining the company with its other Australian operations.

National Foods gave Fonterra access to its books this year to help it decide on the merits of lifting its bid.

"We have a bit more confidence around the synergies and due diligence underpinned our belief in the growth story," Stuart said.

He declined to disclose the extent of potential savings from the deal and exactly how they would be achieved.

It remains unclear if Fonterra will succeed. National Foods shares closed on Friday at A$6.35 amid hopes that San Miguel would come back with an increased offer.

All could be revealed as early as Thursday, when it is required by stock exchange rules to disclose if it will extend or change its existing bid, which closes on March 18.