May 23, 2011

Olam's bid for NZ Farming Systems is reasonable

Olam International's acquisition bid for dairy farm operator NZ Farming Systems Uruguay is reasonably priced, according to an independent report from Grant Samuel.

The report, published today (May 23) on the stock exchange, estimates Farming Systems' value at NZD0.60-0.69 (US$0.47-0.54) a share, below Olam's offer price of NZD0.70 a share (US$0.55).

Olam already owns 78% of Farming Systems from its takeover offer last year, also at NZD0.70 (US$0.55) a share, and this month made an unconditional offer for the rest.

In a letter to shareholders, Farming Systems independent director Graeme Wong recommended shareholders accept the offer but accepted there was a possibility the company could be worth more if the business developed as planned.

''We consider that there are reasonable grounds to believe that farm values at the end of the forecasting period may, if translated into a net asset value for the company's shares, be higher than the value derived in the Grant Samuel report, if earnings forecasted are achieved,'' he said.

"Although the valuation was sensitive to assumptions, a less conservative view of these factors may extend the upper end of the value range of NZD0.60-0.69 (US$0.47-0.54) a share established by Grant Samuel, the price offered by Olam would likely still fall near the midpoint of the value range.''