Olam offer 'far too low'

26-07-2010 | Alan Williams

New Zealand Farming Systems Uruguay (NZS) shareholders are being urged to rally round to keep a large portion of the company owned by New Zealanders, Alan Williams has discovered.

Auckland-based shareholder Paul Cooney was one of several shareholders telling The New Zealand Farmers Weekly that the 55c a share takeover offer price from Singapore's Olam International was far too low.

"Why should we let a foreign business reap the rewards for what a lot of New Zealanders put in as the initial capital?'' he asked. "Why sell out now and then get no returns coming back here?''

Cooney bought into the initial NZS offering at 100c a share in 2007 and says accepting the 55c offer "would be giving the company away.''

Olam is already NZS' biggest shareholder with 18.45%, and some shareholders were disappointed that number two shareholder (and NZS manager) PGG Wrightson had agreed to sell its 11.5% stake to Olam at 55c, providing it with a 30% holding.

"It's ridiculously low,'' said another Auckland shareholder Jim Mutch. "I'm astounded PGW would sell out at that price. It must be desperate for money, and Olam has taken advantage of that.''

The net tangible asset backing is somewhere round the 93c to 98c range, but the shares were at just over 40c ahead of the takeover offer.

Shareholder reaction strongly suggests that Olam won't get all of NZS at the 55c a share offer price, but there is no doubt that a larger shareholding for it will strengthen the listed dairy farm company.

The question is what level of shareholding would be acceptable to other shareholders, many of whom are experienced dairy industry investors sitting on big paper losses with NZS.

It might be in their interest for acceptances to be such that Olam ends up with at least 50% of the shares, one of the conditions of the offer.

By swapping one weaker substantial shareholder for a much stronger one, this would guarantee NZS getting the capital it requires to complete the dairy farm development in Uruguay. The company has said it needs another US$60 million in development capital.

In its takeover notice, Olam said that "one or more substantial capital raisings'' are likely to be required. It says it is also prepared to support NZS's near-term working capital requirements.

The fact that Olam has set 50% ownership as a minimum level indicates it might be quite happy to share the required capital funding with other investors. By underwriting rights issues, it would be able to make incremental increases in its stake.

Mutch believes that despite the 50% milestone being a condition, Olam might settle for less than that. "Olam has a lot of investments round the world where it owns below 50%, and I'm sure it won't spit the dummy on this one.''

One of Olam's minority investments is a 25% holding in Open Country Dairy in New Zealand, where the Talley/AFFCO interests own the majority stake.

NZS has about 1600 shareholders, many of whom paid 100c a share for their initial holdings and 150c in a subsequent raising, when the company was bullishly promoting the project in 2007 and 2008. Most of these investors are well informed about the industry and many went on roadshows to see the Uruguay farms.

As last year's annual meeting showed, they want the company to start performing, after bigger than expected losses.

Te Kuiti farmer Ian Wards borrowed against his farm to finance his NZS holding and says 55c is a long way short of his value for the company. "I'll be hanging in there to see they make some money. I'd hate to sell and still owe (PGW) money.''

"From what I saw, Uruguay has good potential but (NZS) overloaded the infrastructure too fast.''

Olam has said it would ask sitting independent directors, chairman John Parker, John Roadley and Graeme Wong to stay on the NZS board. NZS has appointed Grant Samuel & Associates to prepare an independent appraisal for shareholders.

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