May 23, 2007

 

Louis Dreyfus battles Olam for Australia's QCH

 

 

The takeover battle for Queensland Cotton Holdings Ltd (QCH) intensified Tuesday (May 22) with one of the world's largest cotton merchandisers, Louis Dreyfus Commodities BV, saying it would use the agribusiness as a base for further expansion in Australia after garnering board support for its A$149.8 million bid.

 

The A$5.31 per share cash bid from the France-based private company, which already owns 19.96 percent of QCH, is 12 percent higher than the A$4.75 per share bid from Singapore's Olam International Ltd made on March 7, that has already been accepted by around 14 percent of shareholders.

 

The directors of QCH have unanimously recommended shareholders accept the Louis Dreyfus offer in the absence of a superior proposal emerging, and withdraw any acceptance to the Olam offer, which is subject to a 50 percent acceptance level and due to expire May 30.

 

"We welcome the materially higher price of the offer and note that it is not conditional on a minimum level of acceptances, which provides it with a high level of certainty," said Queensland Cotton Chairman John Reynolds in a statement.

 

A spokesman for Olam in Singapore told Dow Jones Newswires the company is currently "discussing options," but declined to elaborate if it would increase or extend its offer.

 

Queensland Cotton shares closed 36 cents, or 7.1 percent, at A$5.47, earlier setting an eight-year high of A$5.51, with analysts saying the strategic importance of a foothold in the Australian agriculture market would likely prompt a renewed offer from Olam.

 

"We expect Olam to have left enough ammunition in its budget to hike its offer," said Citigroup's Singapore-based analyst Peter Williamson in a research note to clients, adding "it's not all about cotton".

 

Williamson noted that with Australia a major exporter of macadamia nuts, almonds, sugar, dairy products, wood and wool, "the acquisition would open a whole spectrum of agricultural products that dovetail neatly into Olam's current portfolio".

 

A Brisbane-based analyst with a major international investment bank told Dow Jones Newswires that with a restructuring of Australia's wheat export monopoly held by AWB Ltd underway, offshore agricultural rivals were jockeying for position.

 

"It's a very opportunistic time, so strategically they can probably afford to pay these higher prices," said the analyst.

 

Speaking at an analysts briefing, Richard Haine, chief executive officer of QCH, said a successful buyout by Louis Dreyfus would take their presence in Australia to "a whole new level".

 

"Louis Dreyfus has been very explicit in seeking to use Queensland Cotton as a platform to develop a broader agribusiness capability in Australia," said Haine.

 

Queensland Cotton accounts for around a quarter of Australia's cotton exports and operates 23 cotton gins, including 12 in the US. It also has operations in Brazil.

 

Haine said joining forces with Louis Dreyfus would give Queensland Cotton extended international marketing reach and the financial capacity to help the company face the challenges presented by the worst drought in Australia in over 100 years.

 

"Louis Dreyfus has also stated its intention to promote Queensland Cotton's further diversification and we are looking forward to benefiting from its global products expertise, strong financial position and support in other key development areas for our company and our employees," said Haine in a statement.

 

Louis Dreyfus expects to lodge its bidder's statement with Australian regulators by the end of May, before issuing offer documents to shareholders in early June, and expects the offer to be open for at least a month.