The final offer was 24% higher than OlamÆs first bid of A$4.75 a share which it made back in early March, and it is five cents higher than the last offer made by rival bidder Louis Dreyfus Commodities of France. Olam and Louis Dreyfus have been locked in a battle for Queensland Cotton for the last three months, making counter offer after counter offer.
Paris-based cotton trading house Louis Dreyfus already owns about 20% of Queensland CottonÆs shares and saw the acquisition play by Olam as an opportunity to consolidate its position in the company. In successive bids made on May 22 and June 1, it offered A$5.30 and A$5.85 a share. Eventually, though, Olam won out, with Louis Dreyfus agreeing to sell its stake in the company at the A$5.90 price announced yesterday.
ôLouis Dreyfus has obviously had a change of heart,ö says a source familiar with the deal. ôEither it decided the price was too rich, or it changed its mind about whether the asset was a strategic fit. Queensland Cotton is an entrenched player with an on-the-ground presence at the farm gate. ItÆs possible that Louis Dreyfus decided that this didnÆt fit with its international commodities trading mantle.ö
The final bid values the Australian asset at around 26 times its earnings of A$6.75 million for the financial year ended February 2007. The A$5.90 share price represents a premium of 76% above the companyÆs closing price prior to the acquisition announcement in March, and 63% higher than the 12-month volume weighted average price of the stock. It is also well above the independent expert valuation range of A$4.65 to A$5.13.
In the closing weeks of the transaction, OlamÆs bidding tactics sparked controversy in Australia and angered corporate commentators. The tactic in question was a requirement by Olam that, before agreeing to top Louis DreyfusÆ offer of A$5.85 a share, the directors of Queensland Cotton be forced to sell their personal shares in the company at OlamÆs second offer price of A$5.65.
If they didnÆt comply, said Olam, the Singaporeans would walk away from the deal. That placed pressure on the target directors to decide whether to put their personal interests ahead of the best interests of other shareholders.
ôWhat was strange about this condition was that the directors only owned such a small number of shares, so it wasnÆt a material requirement, more a signal to the market,ö says the source. ôEventually the directors agreed with the requirement and sold their shares at the lower price. But it didnÆt go down very well in the business community. It is doubtful whether another buyer would get away with this type of proviso on a deal in the future.ö
OlamÆs final bid is unconditional which means there is no minimum acceptance level on the deal. With Louis Dreyfus agreeing to sell its shares and with some acceptances already received from other shareholders, Olam will have an interest of about 28.5% in the company û making it likely that other shareholders will also sell their shares and give Olam control of the business.
According to a source, Olam and Louis Dreyfus have been talking closely in the last few weeks and that a deal may emerge where Louis Dreyfus buys Queensland CottonÆs warehouse in Eloy, Arizona. At this stage, the company is not confirming such a sale. In a statement to the Australian Stock Exchange, Olam said it would undertake a review of the Australian business once it takes control. ôOlam would only consider the sale of non-core assets [outside Australia] after an independent valuation on the fair market value of these assets, a shareholder vote and after consultations with regulatory authorities,ö the statement says. ôThe consideration of a sale of non-core assets in no way detracts from OlamÆs objective of using Queensland Cotton as a base for continued expansion in Australia.ö
Chris Baohm of Gresham Advisory Partners who advised Queensland Cotton on the sale, says Olam showed clear determination in its acquisition strategy. ôIf you want to be a player in agricultural commodities these days you really need access to the primary producers of the commodities and Queensland Cotton has this access,ö he says. ôBut Olam is also interested in gaining access to other products in Australia.ö
Baohm says he and others were surprised by the level of interest shown by buyers. ôThis is not a very big company and to have such intense interest from two international players was very exciting. They were both playing for keeps from the beginning.ö
The offer period has been extended following the price increase yesterday, with shareholders having until July 6 to accept. Meanwhile, Queensland Cotton will pay a break fee of A$1.65 million to Louis Dreyfus following its recommendation of the Olam offer.
Queensland CottonÆs shares closed down two cents to A$5.88 a share in trading yesterday.
Olam was advised by Macquarie on the deal.
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