Bid increase turns up heat in fight for NZ Farming Systems

NZ Farming Systems Uruguay Photo / supplied

Heat is building in the takeover battle for NZ Farming Systems Uruguay as Singapore-listed Olam International boosts its offer.

Olam yesterday increased its offer from 55c to 70c a share, valuing the NZX-listed company at $171 million.

Uruguay-based Union Agriculture Group this month gave notice of a 60c a share offer, while this week NZ Farming Systems said it was in negotiation with a potential new investor involving a significant minority investment.

"Olam is of the view that such a capital raising is likely to be dilutive to existing shareholders, and accordingly is unlikely to vote to support such a transaction," Olam said.

"Subject to this offer being successful, Olam would expect to support a capital raising that is fair and equitable to all shareholders."

Olam said the key reasons for the increased offer were that NZ Farming System's full-year results were in line with its expectations, its status as a project of national interest in Uruguay which would provide fiscal benefits, and the internalisation of the management contract with PGG Wrightson.

The key reasons for the increased offer had a material impact and had not been available at the time it gave notice of an initial offer, Olam said.

The revised offer was well within the 65c-79c a share valuation range determined by independent appraiser Grant Samuel, the company said.

NZ Farming Systems said the terms for ending the management agreement with PGG Wrightson were effective on July 19, subject to bank, bond-holder and shareholder approval.

The internalisation of management was expected to generate a minimum cost saving of about US$1.5 million ($2.1 million) a year. The company had been granted tax benefits with an estimated current value of US$20 million-US$25 million under Uruguay tax law. The tax benefit would be available to offset the company's tax liability once it became operationally profitable, which was anticipated to be in the 2011-12 financial year.

The share price of NZ Farming Systems, set up by rural services company PGG Wrightson to develop dairy farm operations in Uruguay, closed up 7c yesterday at 70c.

Forsyth Barr analyst John Cairns said the internalisation of the management contract and the tax status provided a basis for raising the offer.

"It's getting to a very interesting stage because this company does need a significant amount of capital and the returns on this project won't be evident for a number of years," Cairns said.

The independent adviser's report by Grant Samuel said the company needed capital expenditure of US$62.6 million to complete its development.

Accident Compensation Corporation has agreed to accept the Olam offer for its 7 per cent stake, taking Olam's total ownership, acceptances of its offer and agreement to sell to 37 per cent.

OLAM INTERNATIONAL
* Singapore-based supply chain manager of agricultural products and food ingredients.
* Businesses include cocoa, coffee, cashew, sesame, rice, cotton and wood products.
* Olam has offered 70c each for all shares, valuing NZ Farming Systems Uruguay at $171 million.
* Offer is conditional on having more than 50 per cent of voting rights and Overseas Investment Act 2005 consent.