San Miguel muscles in on National Foods

The Philippines food and beverage giant beats NZ''s Fonterra to the A$1.9 billion acquisition of Australia''s largest publicly listed dairy company.

San Miguel has ended a six-month battle for control of Australian dairy company National Foods Limited by pushing the other bidder, New Zealand's Fonterra, out of the game. On Monday, National Food's managing director, Peter Margin, compelled shareholders to accept the offer of A$6.40 per share saying the company had been through "considerable uncertainty" during the bid process. Shareholders have until April 29 to accept the offer.

If the deal goes ahead, San Miguel will pay as much as 40% more per share than was first offered in the initial bid made by Fonterra back in October. The Kiwi dairy co-operative upped its bid to A$6.20 a share in March, but when San Miguel came back with the A$6.40 offer on Wednesday last week, Fonterra pulled out of the race.

Fonterra already owns 19% of National Foods and said the new offer from San Miguel is the perfect opportunity, "to crystallise a significant profit for Fonterra shareholders". It says it will vote in favour of the offer if it is unconditional.

Announcing the decision to pull out of the race, Fonterra's chief executive officer, Andrew Ferrier, said the NZ company would use the proceeds from the sale to pursue organic growth in Australia, adding to its cheese, yoghurt and milk processing businesses which already generate combined revenues of NZ$1.4 billion. Fonterra will make a profit of around A$250 million on the sale of its 19% stake in National Foods, representing an annualized compound return of 30%.

In response to San Miguel's higher price, Ferrier said, "We have consistently said that we would only pursue the deal at a price that represented good value for our shareholders. We've disciplined investment parameters and believe our offer represented full and fair value for National Foods. It would not have been prudent to go any higher."

San Miguel played its opponent well, knowing that a fair number of Fonterra's 12,000 dairy farmers question whether large offshore acquisitions are in their best interests. Fonterra's co-operative structure means that reaching a consensus on expansion issues is difficult.

Says one insider, "Some farmers are happy with the status quo of receiving large cash dividends, others want to build shareholder wealth by buying assets. The National Foods' deal brought the dichotomy to a head."

San Miguel has been advised by Peter Brownie at ABN AMRO in Sydney, while Fonterra was advised by a combination of CSFB in Sydney and First NZ Capital in Auckland. National Foods' defense has been handled by UBS in Sydney.

The new price from San Miguel is towards the top end of National Foods board's own valuation of A$6.01 to A$6.55 and 50 cents higher than its December offer. National Food's shares have traded as high as A$6.50 in recent days, but are now just under the offer price.

San Miguel has indicated that it wants to purchase a minimum of 50% of the target's shares but is hoping that at least 90% of shareholders accept the offer and trigger a mandatory takeover of a full 100%.

The deal will make San Miguel a significant player in Australia's A$9 billion dairy industry, giving it ownership of such brands as Pura milk, Yoplait yoghurt and Big M flavoured milk. National Foods has annual revenues of A$1.208 billion and last financial year made A$68.7 million in net profit.

San Miguel already owns successful assets in Australia including 100% of Tasmanian boutique beer maker J. Boag and Son and 50% of the Berri juice company. In mid-March, San Miguel reported a 19% increase in operating income from its J. Boag subsidiary claiming that its James Boag Premium Lager is the second largest domestic premium beer brand. It said the beer's market share had increased by 2.5% from 2003 to 2004.

San Miguel has not commented on how the National Foods' win will affect its outstanding bid for NZ Dairy Foods, a company with more than NZ$500 million in annual revenues owned by New Zealand's richest man Graeme Hart. This deal is also said to be worth NZ$1.05 billion plus.

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