Fonterra extends National Foods share offer deadline

The co-operative has been locked in a bidding war with San Miguel since October last year, after its initial hostile offer of AUS$1.62 billion was trumped by an offer from San Miguel of AUS$1.78 billion.

In a statement released to Australia's Stock Exchange last week, National Foods' board expressed unanimous support for San Miguel's offer and David Crawford, National Foods' chief executive, said: "Each director of National Foods who has a relevant interest in National Foods shares intends to accept the offer...in the absence of a superior proposal."​

National Foods' board has previously criticised Fonterra's offer of AUS$5.45 per share for being too low, claiming its shares should be valued in the region of AUS$6.11-AUS$6.65. Conversely, San Miguel's rival bid is within 2 per cent of the board's valuation range.

Analysts have predicted that in order for Fonterra to clinch the acquisition, it will have to stump up at least AUS$6.17 per share - although they claim it can afford to pay more than San Miguel because of the expected AUS$40 million savings anticipated through merging its dairy operations with National Foods (both companies currently operate rival distribution channels and production facilities, which would be shared under an acquisition agreement).

Despite this, Fonterra has maintained its initial takeover offer and has also extended its bid deadline from 15 February to 8 March - ten days prior to the expiration of San Miguel's offer. Under Australia's current competition regulations the co-operative must schedule a renewed offer by Tuesday -a bid which would represent Fonterra's biggest commercial decision in its forty-year history.

Fonterra already holds an estimated 19 per cent stake in Melbourne-based National Foods, and its Mainland cheese and Anchor butter brands have helped it notch up a share in the domestic Australian dairy sector of around 14 per cent.

A successful acquisition of National Foods, however, would see its market share increased to 23 per cent, as well as give it control of Australia's leading milk processor.

Fonterra has previously singled-out National Foods' Yoplait and Fruche dairy dessert brands as potential growth areas - although according to reports in the Australian press, its 13,000 member-farmers have expressed a reluctance to invest heavily across branded, consumer products, fearing that this could subsequently drag down dividend payouts.

Conversely, San Miguel already has several Australian interests stemming from its 50 per cent stake in juice maker Berri (which it acquired for US$170 million last year), and its ownership of Tasmanian brewery J Boag & Sons.

At the end of last year San Miguel declared that its future acquisition policy would centre on companies outside the domestic and neighbouring Asian markets in an effort to broaden its geographic reach.

Last week, the Philippine conglomerate announced that it plans to borrow up to US$1.85 billion in order to finance the deal, of which US$1.4 billion would go towards the acquisition of National Foods. The remaining US$450 million will be used to offset and refinance existing debt.

Meanwhile, Gloria Macapagal Arroyo, the Philippine President, has today ordered her finance team to sell off the government's 39 per cent majority stake in San Miguel.

Analysts have raised concerns that San Miguel's ownership uncertainty could lead to its withdrawal from the National Foods bidding process - particularly if a successful buyer is not interested in the Australian dairy sector.

A spokesperson for San Miguel added, however, that "the San Miguel bidders statement is now with National Foods shareholders and the bid will not be affected".​