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Olam Increases Offer For NZ Farming Systems Uruguay

Contributed by Shares Investment

By Dow Jones Newswires

Singapore-based Olam International Tuesday raised the stakes in the head-to-head takeover battle for NZ Farming Systems Uruguay, increasing its bid for all remaining shares in the company to NZ$0.70 each, up from a previous offer of NZ$0.55.

This trumps the NZ$0.60 per share full takeover offer that Uruguay’s Union Agriculture Group said last week it plans to make for NZ Farming Systems Uruguay.

Investors chased NZ Farming Systems Uruguay stock sharply higher after the announcement as it shows signs a bidding war could be about to break out. Shares closed 11.1% higher at NZ$0.70 while the benchmark NZX-50 finished up 0.3%. The stock has gained 71% since Olam made its initial offer in July.

“They certainly have more chance of success at these sorts of levels,” said Craigs Investment Partners broker Bryon Burke.

The latest bid values NZ Farming System Uruguay, originally spun off by 11.5%-owner PGG Wrightson Ltd to develop farms in Uruguay using pastoral agriculture methods developed in New Zealand, at around NZ$171 million.

The revised bid came after NZ Farming Systems Uruguay Monday said shareholders shouldn’t accept Olam’s NZ$0.55 per share takeover offer as it was too low. It noted the bid was below the valuation range of NZ 65c-79c per share that Grant Samuel included in its independent report, and didn’t include a premium for control.

On Tuesday, NZ Farming System Systems Uruguay continued to recommend shareholders hang on to their shares for now, despite the increased offer.

“The board believes that shareholders’ best interests are currently served by awaiting further information and advice, and confirms that there is no need for any action on the part of shareholders at this stage,” it said in a release.

It noted there is a competing offer pending from Union Agriculture Group and reiterated it is currently negotiating with a third party that could result in an alternative proposal to issue equity without any change of control. It did not provide any further detail.

“In summary, there are three processes under way that could be relevant to shareholders in deciding on the ownership of their shares,” it said, adding it will consider the three options and provide further information as soon as is appropriate.

Meanwhile, Union Agriculture Group’s next move is unclear.

“We are evaluating options and alternatives and we can’t really comment until information is public on this. We are still interested in the company and is finding a way for UAG to get involved,” Chairman Juan Sartori told Dow Jones Newswires in an email.

Separately, a Union Agriculture spokesman told Dow Jones that a formal offer was due to be presented around Aug. 31 – Sept. 1, adding that he didn’t know whether that would change following Olam’s higher offer.

Olam said it had increased its offer after NZ Farming Systems Uruguay’s full year result for the year to June 30 released Monday was in line with Olam’s expectations.

For the financial year ended June 30, NZ Farming Systems reported an operating loss of US$10.4 million from farming activities before market movements in livestock and property and gains from property sales, better than the US$16.4 million loss the previous year. Revenue increased to US$22.5 million from US$15.8 million. It also said it expects a further “substantial improvement” in results in the current year.

Olam also said news that NZ Farming Systems Uruguay is now a “Uruguayan project of National Interest” with the resulting tax benefits is also a factor. Earlier this month, NZ Farming Systems Uruguay said it had been granted tax benefits with an estimated current value of US$20 million to US$25 million under Uruguayan tax law.

Finally, Olam pointed to the internalization of New Zealand Farming Systems Uruguay’s management contract with PGG Wrightson as a reason for raising its bid. Last week, NZ Farming Systems Uruguay said it had agreed to buy out the PGG Wrightson management contract for NZ$4 million and enter a new contract that gives PGG Wrightson a preferred supplier agreement until at least 2019.

“All of the above mentioned information, which have a material impact on the valuation of NZFSU was not available to Olam at the time it gave its notice of initial offer dated July 19th,” Olam said in a statement.

Prior to its offer, Olam purchased an initial 14.35% stake in NZ Farming Systems Uruguay in September last year and a further 4.1% from the receivers of Rural Portfolio Investments in May. It also has an agreement in place to purchase PGG Wrightson’s stake. Its current offer remains conditional on it gaining a 50.1% stake.

Burke pointed out that PGG Wrightson would also benefit from an increased offer. “They get a few extra dollars in the kitty assuming it goes through.”