Fonterra quits National Foods battle - with $268m booty

Fonterra CEO Andrew Ferrier (left) and chairman Henry van der Heyden face the media yesterday. Picture / Paul Estcourt

Fonterra has abandoned attempts to buy National Foods - but will pocket about A$250 million ($268.5 million) by selling its 19 per cent stake in the Australian dairying giant to the sole remaining bidder, San Miguel.

"There was a line in the sand and this line was passed last Wednesday [when San Miguel increased its offer to A$6.40 a share]," Fonterra chairman Henry van der Heyden said yesterday, announcing the decision.

He said the board felt opting out and selling into San Miguel's bid - provided that goes over 50 per cent and becomes unconditional - was the best option for the co-operative's farmer shareholders.

The A$250 million will be retained to pursue further growth.

Chief executive Andrew Ferrier said: "Although we had sought a controlling interest in National Foods as part of our wider development strategy for the Australasian market, we have other opportunities for organic growth and potential acquisitions in our ingredients and brands businesses."

Fonterra was walking away with its head high and with no regrets.

"Frankly, I think we know a lot more about dairying than San Miguel," was Ferrier's only barbed comment.

Fonterra's average purchase price for its 56.5 million National Food shares was A$2.68. The co-operative received total dividend income of A$45.5 million during the period of its investment, which began in October 2000. This represents an annualised compound return to Fonterra's farmer shareholders of close to 30 per cent.

Farmers supported the decision, with Dairy Farmers of New Zealand (DFNZ) chairman Kevin Wooding saying the profit Fonterra will make is "a substantial amount of money and Fonterra should be congratulated for what has turned out to be a canny investment".

DFNZ had full confidence in Fonterra's board throughout the six- month battle for National Foods and that "remains the case".

Fonterra is owned by about 12,000 farmer suppliers, most of whom are members of DFNZ, an industry group of Federated Farmers.

San Miguel's A$6.40 purchase price equals the highest price paid for National Foods shares on the Australian Stock Exchange before its revised offer last Wednesday and is towards the top end of the National Foods board's valuation of A$6.01 to A$6.55.

There was no comment from San Miguel yesterday about the change in circumstances of the bid.

National Foods shares were sold down yesterday, falling 14Ac to A$6.36, with analysts seeing the stock as overvalued now that the battle for control is over.

Dealers also said San Miguel had not acquired the Australian dairy group at a bargain price.

San Miguel, which holds 1.4 per cent of National Foods, has until April 29 to extend its offer or acquire an additional 28.7 per cent of shares which will take it to 30.1 per cent. This will mean Fonterra's 19.9 per cent stake would take the stake over the unconditional required 50 per cent level.

Agriculture and Trade Minister Jim Sutton was circumspect about Fonterra's withdrawal, saying it was a business decision and that the co-operative had done its "homework to the nth degree".

"Fortune favours the brave but it takes wisdom to know when to stop," he said.

Opposition agriculture spokesman David Carter said he was relieved the matter had been resolved.

"The price was getting to a stage where I would have thought there was a high degree of nervousness among shareholders," he said.

Milky way

October 28: Fonterra offers A$5.45 a share (value A$1.62 billion).

December 31: San Miguel bids A$5.90 (A$1.75 billion).

March 4: Fonterra makes revised offer of A$6.20 (A$1.84 billion).

Wednesday: San Miguel offers $6.40 (A$1.9 billion).

Yesterday: Fonterra walks away and agrees to sell its 19.9 per cent stake to San Miguel (if the offer goes unconditional).

- additional reporting: Agencies