Report values NZFSU just under Olam offer

The 70c per share Olam International is offering for New Zealand Farming Systems Uruguay is just above the top end of a valuation range in an independent adviser's report.

In its report published today, adviser Grant Samuel said in its opinion the full underlying value of the shares was between 60c and 69c. That was the price a person or entity would be expected to pay to acquire the company as a whole, and so included a premium for control.

But the report also pointed out that the value of NZFSU was "particularly" sensitive to key assumptions.

In April Singapore-based Olam made the 70c per share offer to buy the 22 percent of NZFSU it did not already own. Following a full takeover offer last August, also at 70c per share, Olam had lifted its stake from 18.4 percent to 78 percent.

Since the second takeover offer last month, Olam has also bought more shares on-market.

For Olam to be able to owning all of NZFSU it needs to reach the 90 percent compulsory acquisition threshold.

The Grant Samuel report said Olam was a major debt provider to NZFSU with $US50 million ($NZ62.9m), plus accrued interest, forecast to be outstanding at June 30.

It had been forecast that NZFSU needed to raise $US110m to $US115m. If Olam did not get all NZFSU shares, the funding of that spending would through a proposed rights issue, the report said.

Olam's new business plan for NZFSU was more conservative than that adopted previously, and moved away from a purely New Zealand-based farming system.

While target milk production volumes were well above those forecast under the old plan, additional costs associated with increasing production were significant. The result was a lower level of cash generation and a higher level of investment.

Graeme Wong, chairman of the NZFSU committee of independent directors, said the independent directors intended to accept the Olam offer for their own shares.

They accepted some shareholders may conclude the Olam offer undervalued NZFSU, based on more optimistic views of variables shown in sensitivity analyses, but on balance the independent directors recommended shareholders accept the Olam offer, Mr Wong said.