Namoi Cotton’s Future Heats Up As Olam Raises Stakes

Olam Group, one of the world’s largest agricultural commodity traders, has made a $122m takeover offer for Australia’s Namoi Cotton.

Olam’s takeover offer of $122m equals 59c a share, comprising a 58c per share cash offer and a 1c special dividend, trumping an earlier bid made by global agri-giant Louis Dreyfus Co. (LDC) of 51c per share.

Namoi Cotton’s executive chairman, Tim Watson, said Olam’s non-binding indicative offer came as an “absolute surprise” when he received notice of its intentions on Wednesday.

Louis Dreyfuss Co. First Bidder and Existing Namoi Partner

French-owned Louis Dreyfus, which already holds a 17 per cent stake in Namoi Cotton and is Namoi’s lint marketing joint venture partner, launched its takeover move, worth up to $109m, in November.

LDC’s plans became a binding offer in January after it completed due diligence investigations of Namoi Cotton’s accounts, promising to retain the Namoi Cotton brand name and an office in Toowoomba after the Namoi board agreed to back its takeover bid in January.

Speaking in January, Louis Dreyfus Head of Cotton Joe Nicosia said: “The addition of Namoi Cotton into our Australian cotton operations also aligns with Louis Dreyfus’ global strategy to reinforce its leadership in core merchandising activities – in this case by strengthening our service to local cotton farmers through an expanded ginning and logistics footprint.”

Namoi has advised LDC of the rival offer and will need to pay a $1m break fee if it does not proceed with their agreed scheme of arrangement.

Olam Joins Namoi Bidding With Double Barrel Offer

Olam’s takeover offer comprises concurrent offers. The first, is a 59c per share offer, comprising a 58c per share cash offer and a 1c special dividend, via a scheme of arrangement that needs to be approved by shareholders.

Concurrently, Olam has made an off-market takeover offer of 57c per share in the event the initial offer if voted down, with a requirement it achieves at least 50.1 per cent. The 57c/share bid would give Olam’s off-market takeover offer a total value at $118m.

If successful, Olam has committed to maintaining the Namoi business under its historic and reputed Namoi Cotton brand.

In a letter to Namoi’s executive chairman, Tim Watson, Olam co-founder and chief executive officer, Sunny Verghese emphasised Olam’s global expertise, extensive customer franchise and track record of driving growth in its businesses “as demonstrated in Queensland Cotton’s success”.

“Acquiring Namoi is in line with Olam’s strategy of strengthening and expanding its cotton merchandising and ginning capabilities in Australia,” Mr Verghese said.

“Namoi’s gins, grain and cottonseed storage facilities, warehouses and access to rail transport, would be highly complementary to Olam’s existing operations.”

Majority Shareholder Voices Support For Olam Takeover

Namoi’s largest shareholder, Samuel Terry Asset Management (STAM), holds 22.37 per cent of Namoi, has backed the Olam proposal after initially standing behind LDC.

In correspondence published to the ASX, STAM said it deemed the Olam offers “to be superior proposals to the existing proposal from Louis Dreyfus Company”.

“STAM encourages the Naomi Board to engage with Olam in relation to their Proposal,” STAM Managing Director Fred Woollard said.

STAM has said it will vote in favour of the 59c scheme of arrangement and otherwise for the off-market offer “in the absence of a superior proposal.”

“STAM confirms that it considers both the Scheme Proposal and Potential Takeover, if either are made, to be superior proposals to the existing proposal from Louis Dreyfus Company,” said Woollard in a letter to the Namoi board. “STAM encourages the Namoi Board to engage with Olam in relation to their Proposal.”

Foreign Investment Board Review on Horizon

While either suitor for Namoi will require Foreign Investment Review Board approval, it’s likely the company, which has 10 cotton gins in NSW and southern Queensland – will not remain Australian-owned.

Foreign investment in Australian agriculture is ramping up as a long-term trend, seeing Australian-owned producers snapped up by international companies.

Earlier this year, fruit and vegetable company Costa Group was sold for $1.5bn to a consortium led by US private equity group Paine Schwartz. Beef giant AACo, while still listed in Australia, became majority-owned by Bermuda-based billionaire Joe Lewis a year earlier. The nation’s biggest wheat trader AWB was snapped up by a Cargill-led consortium in 2010. Graincorp and Bega Cheese are among the few that remain on the ASX.

Louis Dreyfus is a French company and Olam Group is based in Singapore. However, the Olam Group is itself being broken up and Olam Agri – which is the unit that is bidding for Namoi – is 35.4 per cent owned by Saudi Arabia’s PIF.

References: Farm Online, Australian Financial Review, Grain Central, The Australian

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