Fonterra is pitching its revised offer for National Foods as being worth A$6.35 ($6.77) a share for "mum and dad" investors.
Fonterra's Graham Stuart last week completed a tour of retail brokers in Sydney and Melbourne during which he outlined the details of the new offer and argued that a
redeemable preference share option could add another A15c a share in value to retail investors.
Fonterra lifted its bid for National Foods from A$5.45 to A$6.20 a share for full control of the company.
It has also added the option for shareholders to take payment in the form of Fonterra redeemable preference shares.
Fonterra argues that the majority of retail shareholders probably bought into National Foods at below A$3 a share and many would have paid below A$2.
That leaves them facing hefty taxes on any capital gains which could be avoided by opting for the preference shares.
Fonterra's estimates suggest the differential would be 17Ac a share for those who bought in at A$3 a share and 13Ac a share at A$2. The redeemable preference shares are issued at A$10 each and offer a 7 per cent dividend. They mature on March 10, 2010.
Retail investors accounted for about 40 per cent of National Foods when Fonterra launched its takeover in October last year. That proportion is likely to have dropped as professional investors have bought in looking to profit from the takeover.
Brokers who met Stuart said they thought Fonterra's numbers were reasonable and could add appeal for some investors.
But the issue was that not all investors wanted to buy into those kind of products, said Andrew Coppin, the NSW manager of broking firm Bell Potter.
Some would have been into National Foods specifically for capital gains and would have no interest in the preference shares.
The Fonterra offer looked good but ultimately no one would be advising clients to accept while there was a possibility of San Miguel coming back with a higher bid.
"Our advice to clients is: watch this space," Coppin said.
