nz farming systems Uruguay

[duncan macgregor]

I am going to stick my neck out and say ten years. When you are paying interest at 15%, the best return to shareholders would be early repayment of those borrowings.

SNOOPY SNOOPY considering the return on farming at 3% to no more than 5% then borrowing at 15% the likely dividends will take longer to front up if ever, than even you might imagine. The only profit here is a capital gain thats if they dont over fill the swill trough. Macdunk

[bung5]

SNOOPY considering the return on farming at 3% to no more than 5% then borrowing at 15% the likely dividends will take longer to front up if ever, than even you might imagine. The only profit here is a capital gain thats if they dont over fill the swill trough. Macdunk

That 3% you are talking about maybe applies to NZ farms with higher labour costs and higher land prices etc.
Also the cost of the shares are now well under half the original price of the farm.
Even if you were applying the 3% return to these south american farms ( which were a a lot cheaper!) then that would be about 7.5 % return at current prices.

[duncan macgregor]

That 3% you are talking about maybe applies to NZ farms with higher labour costs and higher land prices etc.
Also the cost of the shares are now well under half the original price of the farm.
Even if you were applying the 3% return to these south american farms ( which were a a lot cheaper!) then that would be about 7.5 % return at current prices. The return on farming is a good life style industry for hard working families it has never returned decent profits on capital outlay for farms run under management by business people in any country in this world. We know best, nobody does it like us, cant you see it coming. Farming cant support high paid people running about in collars and ties. The russians found that out the hard way as you will find out in good time. Macdunk

[bung5]

The return on farming is a good life style industry for hard working families it has never returned decent profits on capital outlay for farms run under management by business people in any country in this world. We know best, nobody does it like us, cant you see it coming. Farming cant support high paid people running about in collars and ties. The russians found that out the hard way as you will find out in good time. Macdunk

You just ignored your previous argument about the 3% return in this scenario . Every company has its price .

[bung5]

every cent that milk price per litre rises equates to 1 million extra EBITA USD for the 2010/2011 year. Current forecasts were for 25c per litre are conservative. even a raise around 30c should put them in or close to positve ebit for 2010/2011

[Nevl]

every cent that milk price per litre rises equates to 1 million extra EBITA USD for the 2010/2011 year. Current forecasts were for 25c per litre are conservative. even a raise around 30c should put them in or close to positve ebit for 2010/2011

Could be a lot higher than that. Europe is having a late start to milking. NZ is on drought watch and an early finish. There is a bit of tightness in the global dairy markets at the moment.

[mouse]

The return on farming is a good life style industry for hard working families it has never returned decent profits on capital outlay for farms run under management by business people in any country in this world. We know best, nobody does it like us, cant you see it coming. Farming cant support high paid people running about in collars and ties. The russians found that out the hard way as you will find out in good time. Macdunk

Many thanks MacDunk. We need to read the other view often. Irrational Exuberance is fairly infectious.

[Snoopy]

Many thanks MacDunk. We need to read the other view often. Irrational Exuberance is fairly infectious.

In defence of bung5 and Nevl, they have both put up arguments on why milk prices are moving and what the result of that may be on NZS. Macdunk on the other hand has a fixed view of dairy independent of milk prices and input costs. I will leave you to decide which contribution is the most irrational.

SNOOPY

[macduffy]

I take MacDunk's point on the difficulty in making corporate farming pay. Or corporate "anything" to do with producing from the land. The overheads involved continue on regardless of seasonal conditions and need to be met through boom, bust, drought, floods or whatever. Even the well established rural servicing firms such as PGW find things difficult at times.

I'd like to see NZS succeed but regard them as a speculative investment at this stage.

Disc: Not holding.

[Snoopy]

I take MacDunk's point on the difficulty in making corporate farming pay.


A pay manager may not have the same link with the land as an owner farmer. I think that means the mooted sale and lease back of land could actually work for NZS. Selling land to their best and brightest farm managers (if that is indeed who the potential buyers be) might work well for both parties. Then again perhaps it is underselling farm managers to say that they will necessarily do a second rate job. Maybe it is just a question of getting the incentives right? Dangle NZS shares in front of them as a carrot perhaps?

SNOOPY

[bung5]

Dangle NZS shares in front of them as a carrot perhaps?

SNOOPY

Tier 2 shares @ $1.40 on the uruguay stock exchange would be nice.

[Snoopy]

I'd like to see NZS succeed but regard them as a speculative investment at this stage.


The reason I am not buying more NZS shares right now is that I want to see how the rest of the farm development is to be financed. What proportion of land will be sold? What will be the interest rate on the new bonds? It is all very well talking about EBIT. But in the real world interest has to be paid and the shareholders are the people who pay it.

SNOOPY

[duncan macgregor]

A pay manager may not have the same link with the land as an owner farmer. I think that means the mooted sale and lease back of land could actually work for NZS. Selling land to their best and brightest farm managers (if that is indeed who the potential buyers be) might work well for both parties. Then again perhaps it is underselling farm managers to say that they will necessarily do a second rate job. Maybe it is just a question of getting the incentives right? Dangle NZS shares in front of them as a carrot perhaps?

SNOOPY Snoopy you must first of all have the return on capital to pay incentives. If you go to any dairy farm and count the total cost of land, stock, and equipment as the mathematical figure to find a return. Take normal wages and running costs from profits of production you will find 5% on capital the likely average. If you add managers to your costings then deduct that extra expence. The capital gain is greater than the profit generated. If you still have doubts then do your self a favour and get out on the land and ask any dairy farmer to show you his books.
This is an ignorance is bliss project for share holders, with the selected few creaming your hard earned cash. Macdunk

[percy]

I have a few NZS so have found posts of great interest.I am wondering if any one has Tasman Farms the NZ owned Dairy Farmers in Tasmania.From memory they have done well.

[bung5]

If you still have doubts then do your self a favour and get out on the land and ask any dairy farmer to show you his books.
This is an ignorance is bliss project for share holders, with the selected few creaming your hard earned cash. Macdunk

What if we then tell the farmer that one can "buy" this farm at 1/4 of the price ?

[duncan macgregor]

What if we then tell the farmer that one can "buy" this farm at 1/4 of the price ? Find enough fools to set you up and you wont end up milking cows. Cost of land is not so much relevent its the cost of setting it up, new sheds, new herds new equipment, plus irrigation. Enough said its your money good luck. Macdunk

[bung5]

Find enough fools to set you up and you wont end up milking cows. Cost of land is not so much relevent its the cost of setting it up, new sheds, new herds new equipment, plus irrigation. Enough said its your money good luck. Macdunk


Yes I agree with you there.. but the share price is is well under half the capital cost. Buying shares at $1 and $1.40 that would be the mistake

[Snoopy]

Cost of land is not so much relevent its the cost of setting it up, new sheds, new herds new equipment, plus irrigation. Enough said its your money good luck. Macdunk


Another aspect I found annoying was all the talk about working with the local power companies to get the power to the door to run the irrigation and milkiing stations. There was nothing in the original prospectus about the power distribution lines in Uruguay not being up to scratch. I would have expected competent managment to keep investors informed on such costs and infrastructure hurdles before they asked shareholders to subscribe.

SNOOPY

[winner69]

This guy seems to be saying what McDunk is
http://www.lostsoulblog.com/2010/04/dairy-warnings-but-is-anyone-listening.html

[bung5]

This guy seems to be saying what McDunk is
http://www.lostsoulblog.com/2010/04/dairy-warnings-but-is-anyone-listening.html

There are key differences between NZ farms and Uruguay farms... the cost of the land and the labour.

Is like comparing a shoe factory in NZ to one in China.

[Snoopy]

This guy seems to be saying what McDunk is
http://www.lostsoulblog.com/2010/04/dairy-warnings-but-is-anyone-listening.html

Yes, but talking about overvalued kiwi farms as a problem, means that undervalued Uruguayan farms are one solution.

SNOOPY

[duncan macgregor]

The cost of labour is only a very small percentage of total cost. I would presume that the equipment would be imported from NZ to a large extent making that a higher cost. Irrigation tells me they suffer drought at certain times, otherwize why take on that huge expence, plus running costs. That can be a long term disaster in the making depending on water quality. To irrigate takes up a huge slice of profits in the best of circumstances.
I would hazard a guess and say growing crops to feed to housed animals would be equally as viable considering a dairy cow destroys as much feed as it consumes. Dairy cows in sheds produce enough gas to be energy relient free with enough extra to sell on. I would also presume that they might struggle to pay any kind of dividend to share holders unles they are debt free, considering they pay more for finance than the profit level. The future farmer will have cows in nice warm sheds, heated up by the cows own bodies as they are in my home land, where the average dairy cow is housed for five months of the year and out produces the average NZ cows dairy production even in the middle of winter Macdunk.

[elZorro]

Macdunk, maybe that sort of cosy setup works fine for a few cows, but over here we have a lot more cows on average, per herd.;) Our cows can also produce far better than the average here, but the costs and effort usually outweigh the price obtained.

Plenty of scientists say the same thing: each cow has to waste energy on body heat, so why not conserve that, or feed up fewer cows so that on average, each cow produces more milksolids. There are other farmers using feedpads to go halfway to this idea, a more practical solution for NZ.

I was shocked recently when I did some calculations on energy efficency of dairy farming: of the energy from the sun hitting each hectare, only 0.06% of it (0.0006x) ends up heading away in the tanker past the farm gate. The rest of it presumably is lost as waste heat, and evaporating moisture from the ground.

I personally think that growing grass should be the easiest area to tackle: it's a massive crop for NZ, but how many farmers do you see looking hard at each paddock? Before we take our "technology" overseas, maybe we should get it sorted out here.

[Snoopy]

The cost of labour is only a very small percentage of total cost. I would presume that the equipment would be imported from NZ to a large extent making that a higher cost. Irrigation tells me they suffer drought at certain times, otherwize why take on that huge expense, plus running costs. That can be a long term disaster in the making depending on water quality. To irrigate takes up a huge slice of profits in the best of circumstances.


The break down of farm working expenses from p24 of the FY2009 report is as follows:

Personnel expenses $US5.090m (22.4%),
Animal Health & Breeding & Calf Rearing $US2.711m (11.9%)
Cropping and feed costs $US5.199m (22.9%)
Repairs and Maintenance $US0.727m (3.2%)
Pasture maintenance $US5.674m (25.0%)
Electricity & Fuel $1.243m (5.5%)
Other Working Expenses $2.064m (9.1%)

Capital equipment purchases are not ongoing running expenses.

SNOOPY

[Snoopy]

If you add managers to your costings then deduct that extra expense...
This is an ignorance is bliss project for share holders, with the selected few creaming your hard earned cash.

The management fee at 1% of gross value of assets due to PGW (For USD $200m of assets that means $US2m per year, approx. NZ1.2c/share per year) can be recovered by growing your own snout, and lining up at the trough yourself. That means becoming a PGW shareholder.

The employee benefits expense (includes all wages, not just management) of around $US4m per year (NZ2.4c/share per year) cannot be so recovered. But with turnover of around NZ12c per share expected this year, can you argue that this level of labour expense is excessive?

SNOOPY

[bung5]

I think that managment fee got reduced further as well recently..

$4 million for all labour incl managment IMO is small penuts to be worrying about on farming this size.

[duncan macgregor]

I think that managment fee got reduced further as well recently..

$4 million for all labour incl managment IMO is small penuts to be worrying about on farming this size. I found your choice of words funny to say the least. After the second world war the british labour party set up a huge penut operation in south Africa which ended in total disaster. They knew the lot in similar fashion to you lot which ended up costing the tax payer countles millions. I would strongly suggest you go down to your nearest dairy farm and have a quiet word about reality to some one in the business. Macdunk

[bung5]

I found your choice of words funny to say the least. After the second world war the british labour party set up a huge penut operation in south Africa which ended in total disaster. They knew the lot in similar fashion to you lot which ended up costing the tax payer countles millions. I would strongly suggest you go down to your nearest dairy farm and have a quiet word about reality to some one in the business. Macdunk

It is interesting you say that because I have. The way NZ farms operate is taking out huge interest only loans buying up land and then farming at a near break even. They do not pay back these loans until they sell and hope to make captial gains.
If NZ farmers could by the land at prices that are in south america they would be a lot more profitable.
How this relates to NZS? They have had to take out debt to fund captial expenses because of the deflated share price.
You continue to compare pears with apples. I agree with you on your points but only for NZ farms. What if you buy these NZ farms at 1/3 of the price they are now?? They would be cash cows :)

[Snoopy]

I think that managment fee got reduced further as well recently..

$4 million for all labour incl managment IMO is small penuts to be worrying about on farming this size.


I thought that too Bung. However on careful rereading of the new agreement I see that the management fee has been reduced from 1% to 0.75% on all assets over a $US400m gross asset valuation. The current gross asset valuation is nowhere near that figure, and NZS are selling assets not acquiring them. So the negotiated fee reduction looks a little like that straw man again. Another scarecrow in those Uruguayan paddocks?

SNOOPY

[Snoopy]

The reason I am not buying more NZS shares right now is that I want to see how the rest of the farm development is to be financed. What will be the interest rate on the new bonds?


Worrying news from Fitch today

"Fitch Ratings considers there are tangible financing alternatives for NZS to fully complete farm development and therefore maintains an overall investment grade rating. However the rating of BBB (Uy) Watch negative from the A- (Uy) rating announced in March 2009 reflects the delay in the implementation of the development."

Interest rate for existing A- rated bonds =15%. Interest rate for new BBB rated bonds = ?????

SNOOPY

[bung5]

Worrying news from Fitch today

"Fitch Ratings considers there are tangible financing alternatives for NZS to fully complete farm development and therefore maintains an overall investment grade rating. However the rating of BBB (Uy) Watch negative from the A- (Uy) rating announced in March 2009 reflects the delay in the implementation of the development."

Interest rate for existing A- rated bonds =15%. Interest rate for new BBB rated bonds = ?????

SNOOPY


should just sell the farms and give bck 80c per share

[mouse]

should just sell the farms and give bck 80c per share
Further, I think ,and I may be wrong, the interest is paid on a US Dollar rate. At the least, there is a tie-up to the American Dolar. When they first were selling these bonds I tried to buy some. The answer was, only for sale in Uruguay!

[macduffy]

Further, I think ,and I may be wrong, the interest is paid on a US Dollar rate. At the least, there is a tie-up to the American Dolar. When they first were selling these bonds I tried to buy some. The answer was, only for sale in Uruguay!

Now, was that a lucky escape?

[Snoopy]

Now, was that a lucky escape?

No. If I could line up and get some of those 15% NZS bonds I would. There is very strong protection for bondholders in Uruguay, something that the NZ government could learn from. NZS has already had to hand over title of farms to a bond investment trust, independent of NZS. If NZS miss interest payments or capital repayments, then the bondholders 'get the farm' - literally. And the farm is sold to pay the bondholders back.

SNOOPY

[duncan macgregor]

SNOOPY, You assume that the money returned from a mortgagee sale covers the money owed taking into account all the expensive snouts in the trough requiring a feed in order to do so. Farming cant stand 15% over the top, the return is much to small so dont fall into that trap. If it looks to good to be true then it is. Macdunk

[Snoopy]

SNOOPY, You assume that the money returned from a mortgagee sale covers the money owed taking into account all the expensive snouts in the trough requiring a feed in order to do so.

The guarantee trust has fixed running costs of $US15,000 per year (on loan value $US30m). The guarantee trust can only loan out money based on 70% of the value of the underlying farms held in trust. If the value of land falls then NZS is required to tip more land into the guarantee trust to maintain the asset cover on the loan at 1/0.7=42.9% above the value of the money leant out. Do you still think those bondholders are going to end up out of pocket even if things go badly wrong?

SNOOPY

[duncan macgregor]

I would think that the bond holders might be the only people coming out making money out of this SNOOPY. How on earth do they think they can make money paying back 15% on money in a farming venture, which only shows how out of touch they are with reality. This project will be lucky to acheave a 5% return on capital, up to the capital gain at the end. I would think dividends if any will be very small indeed and if I were a share holder I would be more concerned finding out about capital gain tax in that country if a forced sale occurs. Macdunk

[bung5]

Looks like the RPI share holidng got sold @ 41c

[Meddler]

Olam again perhaps? Be curious to see if so.

Assuming I haven't missed word on who the buyer was.

[percy]

Olam again perhaps? Be curious to see if so.

Assuming I haven't missed word on who the buyer was.

You got it right Meddler it was olam.
Todays announcement read well to me.Looks as though the company is on track to acheive it's objectives.

[Doyle]

Good news about the overhang disapearing, great news. Great news about milk prices, but bad news about milk production ( same old story here production keeps getting scaled back). Having said that a bargain at 41 cents, and Olam is giving it the vote of confidence. So on balance yeah good announcement. But I just wish management could set a realistic production target then acheive, this falling short is starting to be pathetic.

[bung5]

Bring on takeover offer

[mouse]

Bring on takeover offer
Probably from the Chinese!

[Snoopy]

But I just wish management could set a realistic production target then acheive, this falling short is starting to be pathetic.

p3 from FY2009 Annual Report
"The company expects to require a further $US50-60m of funding to complete development on its existing farms, in addition to the US$30m obtained vis the bond issue. Sources for this funding are anticipated to be a further bond issue in the second half of the 09/10 , and potentially sale and/or leaseback of some farms."

FY2010 has finished and there has been no more funding announced. The previous bond issue credit downgrade has not helped with raising more funds. Arrested development could mean trouble reaching breakeven point?

SNOOPY

[Balance]

p3 from FY2009 Annual Report
"The company expects to require a further $US50-60m of funding to complete development on its existing farms, in addition to the US$30m obtained vis the bond issue. Sources for this funding are anticipated to be a further bond issue in the second half of the 09/10 , and potentially sale and/or leaseback of some farms."

FY2010 has finished and there has been no more funding announced. The previous bond issue credit downgrade has not helped with raising more funds. Arrested development could mean trouble reaching breakeven point?

SNOOPY

Olam will take this thing out for debt value - I suspect that's their game.

[Well Fed]

Could also mean that they dont yet have enough cows to warrant the development spend and with the rise in milk price, breakeven point or cashflow possitive is in sight with out the higher debt servicing costs.

[percy]

Could also mean that they dont yet have enough cows to warrant the development spend and with the rise in milk price, breakeven point or cashflow possitive is in sight with out the higher debt servicing costs.

Welcome Well Fed.
Things seem to be moving along better now,with no brought etc.I have been wondering why they have have not raised more funds.No word of more farm sales,so next announcement should be intersting.I did think it could mean the Urugurian infrastructure ie power had not been completed so no use moving ahead until that is completed.

[Doyle]

I suspect they can't sell the volume of farms to raise 30m, without spooking the market. It's a tough market to sell farms in both here and over there from what i'm hearing. Might have to take a hit as big as 25% to raise that sort of cash from sales and then what does that say about the rest of the portfolio? Would be bloody nice for olam to take on the debt, or what about wrightsons finance? Either way doesn't make sense to go to the market for capital given the current SP.

A bit of a nervous time to be a shareholder (and a fair chunk of my portfolio at that). But i'm going to wait this one out.

[Snoopy]

Would be bloody nice for olam to take on the debt, or what about wrightsons finance? Either way doesn't make sense to go to the market for capital given the current SP.


If PGW is given the job of issuing bonds to fund NZS at a 15% interest rate (to match what NZS offered the Uruguayans last year) then I for one would be in. My NZS shares might be caned and as a result and I would be pained. But earning 15% fixed rate on any bond capital I put up for a few years would be a good anaesthetic.

SNOOPY

discl: hold NZS, PGW

[bung5]

Singapore's Olam International said it has made a $109.6million offer to buy the remaining shares in dairy farmers NZ Farming Systems Uruguay Ltd it does not own.

Olam, which owns 18.45% of NZFSU already, will pay $0.55 in its takeover bid.

The offer is subject to Olam achieving a minimum 50.1% shareholding in NZFSU post the offer and the approval by the Overseas Investment Office.

NZ Farming shares last closed at $0.41.

http://tvnz.co.nz/business-news/takeover-bid-farming-systems-uruguay-3651584

[Snoopy]

Olam, which owns 18.45% of NZFSU already, will pay $0.55 in its takeover bid.


Looks like Balance was on the button with this. An opportunistic bid to be sure, but I wonder if Olam understand the psychology of the remaining shareholders? Distressed shareholders will already have sold out. Those founding shareholders left knew they were buying into a development project, and it would make no sense to sell out before development is finished. Sure there is a question mark over the next stage of funding, so this bid will force the board to disclose what they are planning. But a bid of only 55c, well under liquidation value of the Uruguayan farms, is of no interest to me. I'll be keeping all my shares.

SNOOPY

discl: hold NZS

[Snoopy]

Sure there is a question mark over the next stage of funding, so this bid will force the board to disclose what they are planning. But a bid of only 55c, well under liquidation value of the Uruguayan farms, is of no interest to me.


NZS needs another $US30m, $NZ50m to complete farm development. $NZ50m represents NZ20.5cps per share. Why not declare a 1:2 cash issue at 55c? Cash strapped shareholders could then sell their rights at the Olam bid price. Those who want to stay in could buy more shares on the same terms as Olam. And Olam would get the opportunity to 'up their stake'. Such an offer would raise up to $NZ67. As long as 75% of rights were taken up NZS would get their money, so there is probably no need to have an 'official' underwriter. Olam is now a defacto market underwriter. Is there any appeal in my 'funding suggestion' from other shareholders?

SNOOPY

[Snoopy]

Cash strapped shareholders could then sell their rights at the Olam bid price.


Things are moving fast! PGW have already agreed to sell their near 11% shareholding to Olam. Olam now have 30% of the company, so only another 20% to go. Perhaps those new shareholders who picked up shares after the RPI collapse will be tempted by the quick buck?

SNOOPY

[Balance]

Things are moving fast! PGW have already agreed to sell their near 11% shareholding to Olam. Olam now have 30% of the company, so only another 20% to go. Perhaps those new shareholders who picked up shares after the RPI collapse will be tempted by the quick buck?

SNOOPY

Sadly, I think many NZers will sell into the bid as most are over-stretched in their dairy farm exposure. Many shareholders in NZS are/were dairy farmers who geared off their highly successful and highly valued farms all those years ago to diversify into Uruguay.

Their appetite for risk and borrowings have diminished somewhat in the last 2 years.

[Snoopy]

Sadly, I think many NZers will sell into the bid as most are over-stretched in their dairy farm exposure. Many shareholders in NZS are/were dairy farmers who geared off their highly successful and highly valued farms to diversify into Uruguay.


It struck me as a mistake that Norgate promoted NZS to dairy farmers in the first place. It made far more sense for 'city folk' like me to buy the shares as there is no way I would have the money/expertise to run my own dairy farm. But buying NZS shares was an affordable way to get into dairying.

To address your point Balance, with the milk price on the improve again, would not those distressed dairy farmer shareholders already have sold out of NZS? If you haven't needed to sell out before, why sell out now?

SNOOPY

[Well Fed]

Sadly, I think many NZers will sell into the bid as most are over-stretched in their dairy farm exposure. Many shareholders in NZS are/were dairy farmers who geared off their highly successful and highly valued farms all those years ago to diversify into Uruguay.

Their appetite for risk and borrowings have diminished somewhat in the last 2 years.

Its the Bankers appetite for risk that has diminished.

Farmers in for the long haul wont see value at 55 cents however a shake up in the company is over due.

[Phaedrus]

This stock provides us with an interesting illustration of the wide gulf that can sometimes exist between fundamental and technical investment approaches. Just 3 days after NZX peaked on that "good news", the trendline-break triggered a Sell signal and within 2 weeks a downtrend was confirmed.

You have to laugh at that Herald comment though - To claim that the "gloomy profit forecast" "surprised" the market is absolute garbage - The market had been selling NZS down hard - the stock had been in a steep downtrend for over 6 months!

Sadly, the optimist that broke the "good news" still holds NZS. No exit strategy, see.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/NZS719.gif

[Snoopy]

Sadly, the optimist that broke the "good news" still holds NZS. No exit strategy, see.


IIRC I was the optimist. Fortunately I didn't buy my shares at $1.95, or even half that price. Yet NZS ownership hasn't been a great story, although things looked very different when the price was $1.95.

My exit strategy was and remains to wait until the Uruguayan farms are fully developed. My entry strategy was not to buy more until the source of funds required to finish farm development became clear. Now we know that Olam are willing to defacto underwrite that development my entry uncertainty has been removed.

The 55c offer price is a joke. PGW are only selling because not to do so may mean breaking their banking convenants.
There may be enough sellers to get Olam to 50.5% but they are only bidding because the NZ takeovers code requires them to do so.

Nothing is further from my mind that drawing up a revised exit strategy. I have been buying NZS shares on market today.

SNOOPY

[percy]

I think the story or the idea is intact.This should just strenghten the company.Will retain my holding.

[Doyle]

Having a strong cornerstone shareholder could have its benefits. Particularly because of the need for more capital. I think I will hold on to my shares, althougH I think they will get past the 50% mark, but fall short of the 75%. If the upped their offer a little to say the low 60s I think I would take the cash. Really in my view 55cents is probably less than the companies Net Assets. (Although farms are hard to value in the current market). So yeah the offer is pretty cheeky, I think they will get there though, and they probably know its a bargain too.

[Snoopy]

I think the story or the idea is intact.This should just strenghten the company.Will retain my holding.

For the benefit of Percy and other shareholders, here are the offer details:

http://olam.listedcompany.com/newsroom/20100718_190349_O32_13A0E107E563726F48257764003701 2F.2.pdf

Interesting details I noted were:

1/ There is no need to offer up all of your shares. Partial Acceptance is permitted.
2/ John Parker, John Roadley and Graeme Wong are going to be invited to stay on as independent directors if compulsory acquisition is not invoked. (Seems like the bid is being carefully structured to partially succeed.)
3/ All future business funding efforts and capex > $250,000 must stop until the bid process is resolved.

SNOOPY

[Doyle]

Interesting, note the part about "subsantial capital raisings if nzfsu reamains listed". I guess the question is assuming it reamains listed, is nzfsu worth more or less than 55 cents after the offer? I suspect 55 cents could be a short term peak in the shareprice, and then following on from it the SP drops down a little until capital raisings are finished. In which case maybe take the 55cents now and buy back in at a discount later? a risky strategy as we could reach comulsory takeover territory if everyone does it. In my view if you only get 55cents maybe we should force a vote on liquadating the company? that could return us as much as 70 cents.

Interesting anyway, but im starting to think selling may be the better option, it's made easier for me because ill be selling at a profit. It can be much hader when your selling at a loss in my experience.

[Snoopy]

Interesting, note the part about "subsantial capital raisings if nzfsu reamains listed".


I would say that is part of the scare tactics that Olam will use to try and get shareholders to sell. IMO it makes no sense to issue more shares when there is already a big discount to asset backing in the current share price. NZS needs to sell farms to raise cash. Let's say the effective developed asset backing is now 70c. If they sold farms at a fire sale 20% discount to book value, that would still yield 56cps. Fire sale selling is still a (marginally?) better bet than having a 1:1 rights issue at say 40c to raise $US70m, which is the sort of thing that Olam is hinting at. I paid an average of 80cps for my NZS shares Doyle, so either way I don't get my money back short term! I am sure that using NZ expertise to enrich Singaporean interests is not the vision Norgate had for this company!

[Doyle]

I agree A dissapointing end in deed, especially because I really like what the company does. Hmmn might have the best of both worlds, and sell some and keep some. I can see the likely scenario being the SP drifts downwards, after this offer ends. Just don't want to make the wrong decision I guess.

Anwyay I bet Norgate is not happy about this, Olam could have atleast offered to take on RPIS shares when he was selling them at a firesale. The cash might have been enough to renegotiate their lending for a few more weeks.

[Snoopy]

Anwyay I bet Norgate is not happy about this, Olam could have atleast offered to take on RPI'S shares when he was selling them at a firesale. The cash might have been enough to renegotiate their lending for a few more weeks.


I goofed when I was discussing this before Doyle. Olam was the buyer of those RPI shares! They got them at a knock down price from the RPI receiver. Unfortunately it didn't help NZS at the time though. Buying existing shares in NZS, adds nothing to the cash balance on NZS's books.

SNOOPY

[Snoopy]

I suspect 55 cents could be a short term peak in the shareprice, and then following on from it the SP drops down a little until capital raisings are finished. In which case maybe take the 55cents now and buy back in at a discount later? a risky strategy


I can't see the share price dropping after the takeover offer closes Doyle. If someone was worried about a cash issue the logical thing to do would be to sell into the offer at 55c and avoid it. Why would you hold onto your shares and then sell for a lower price than a cash offer already on the table? My bet is that the share price will rise above 55c when the takeover offer closes. However there is an interesting development in the market today with shares changing hands for 55c on market. Perhaps this buyer sees 55c as a new floor for NZS, and they are getting in before everybody else works it out?

SNOOPY

[duncan macgregor]

What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk That is as true today as it was when I posted that on the first page of this thread. I really have a low opinion of a fundamental investors analysis who is that blind to reality that they would think this was a good investment. Macdunk

[Meddler]

That is as true today as it was when I posted that on the first page of this thread. I really have a low opinion of a fundamental investors analysis who is that blind to reality that they would think this was a good investment. Macdunk

Out of curiosity does that same low opinion apply to Olam in this case or are do you see them as being in a better position due to their potential control?

[duncan macgregor]

Out of curiosity does that same low opinion apply to Olam in this case or are do you see them as being in a better position due to their potential control? One and one will always make two regardless of who thinks what. There will be a lot of investors losing a lot of money simply because they are totally ignorant of the returns that farming is capable of producing. Get down the road and ask a few dairy farmers what returns they make after paying themselves a normal wage. Its a three pc my friend on the best farms plus a capital gain at the end thats the numbers. Lets hope a dairy farmer steps out with a few numbers to enlighten the vulnerable. Macdunk

[Snoopy]

Anyway I bet Norgate is not happy about this,


Well, well Craig Norgate and Keith Smith, the two who fronted the original NZS roadshow, are now judged 'independent directors' of NZS. Olam their new potental parent has indicated their services will no longer be required if the takeover proceeds. The independent director's bid approval will require both to sign off that actually they effectively lied about NZS's prospects and the shares are only worth about half what they said they were worth at promotion time. What chance of such an independent directors recommendation do you think? I would say the Olam bid, at 55c, is already dead. IMO, those buying today at 55c in anticipation of an amended higher bid should be rewarded.

SNOOPY

[percy]

The story just gets better.We are further down the road.We are "lucky" we do not have to buy more farms.All we have to do is find some money to develop what we have,and with a strong shareholder,the pace will pick-up.

[Well Fed]

One and one will always make two regardless of who thinks what. There will be a lot of investors losing a lot of money simply because they are totally ignorant of the returns that farming is capable of producing. Get down the road and ask a few dairy farmers what returns they make after paying themselves a normal wage. Its a three pc my friend on the best farms plus a capital gain at the end thats the numbers. Lets hope a dairy farmer steps out with a few numbers to enlighten the vulnerable. Macdunk
Currently we are at 7% returns valuing the land at $ 50.000 ha.
Uruguay is cheaper land but we seem hell bent on increasing the cost with the irrigation. Ive not seen the option yet off reducing the rate of capital spend, ie slow down the irrigation implementation and learn to farm properly with what we have 1st.
I doubt if Olam or any of the corporate investors have any idea about turning grass into milk.
Olam want NZS as a vehicle for greater things, weather you like it or not NZS is a dairy farm until Olam gain control.
The option of farming our way out of this should be looked at without Olam taking control and without the aggressive spend.
The largest Corporate land holder in Uruguay, the "Union Agriculture Group" is making good cash returns from cropping and the like.
A bit of lateral thinking required.

[Doyle]

Currently we are at 7% returns valuing the land at $ 50.000 ha.
Uruguay is cheaper land but we seem hell bent on increasing the cost with the irrigation. Ive not seen the option yet off reducing the rate of capital spend, ie slow down the irrigation implementation and learn to farm properly with what we have 1st.
I doubt if Olam or any of the corporate investors have any idea about turning grass into milk.
Olam want NZS as a vehicle for greater things, weather you like it or not NZS is a dairy farm until Olam gain control.
The option of farming our way out of this should be looked at without Olam taking control and without the aggressive spend.
The largest Corporate land holder in Uruguay, the "Union Agriculture Group" is making good cash returns from cropping and the like.
A bit of lateral thinking required.

I suspect your 7% figure is before any drawings. (I.e. you are not paying yourself a wage before that figure is calculated). However you do raise a good point about land being cheaper in uraguay. Which is the point Macdunk kept on missing. If you can produce the same amount of milk on cheaper land, then the returns increase. Have been trying (unsuccessfully) to explain this to duncan McGgregor for about a year. Its always hard to get your point accross when the share price agrees with the other party.

Well Fed unfortunately the capital spend is very necesary, most these farms are simply undeveloped drystock farms. Without the capital spend I would not be interested. An average uryguayan farm investment is hardly exciting. Getting 960kg of milk solids per hectare off uryguayan land on the other hand is an investment. So the question is where does the money come from? And to some degree I think Olam have answered that.

[Well Fed]

I suspect your 7% figure is before any drawings.
Sort of semi retired, drawing 50 G / annum and paying the staff before the 7%
There is a huge range in the profitability from similar farms. Management often accounts for this variation and this should be addressed before throwing money in to areas that may not have been researched thoroughly.

[Doyle]

Sort of semi retired, drawing 50 G / annum and paying the staff before the 7%
There is a huge range in the profitability from similar farms. Management often accounts for this variation and this should be addressed before throwing money in to areas that may not have been researched thoroughly.

Good on you obviously a very well run operation. Sounds like it would be worth your 50k/hectare, even on todays market.

[Snoopy]

Out of curiosity does that same low opinion apply to Olam in this case or are do you see them as being in a better position due to their potential control?


Olam very critical of NZS Uruguayan farm management in the paper today:

1/ Even NZS's best established 'trial farm' has failed to achieve the prospectus aspirational goals.
2/ Mistakes made on the trial farm have been perpetuated over the rest of the farmland under management.
3/ Company has expanded too fast.
4/ The eastern hub area (16,000Ha), the largest area of the three hub areas owned by NZS is the least suitable land for dairying. The central and western farms account for 11,000Ha and 3,700Ha respectively.
5/ Supplementary feed will allow farms to reach their production targets, but at a big cost to profitability. The implication being that NZS does not fully understand the quality of the land they have.

Pretty hard hitting! Independent director Graeme Wong says 'watch this space' for the response.

I wonder how much of the underperformance is due to unusual weather patterns though?

Olam also noted that they want control of management so thay can fix these things, so a 50.1% result in the takeover offer will be fine. Lot's of food for thought...

SNOOPY

[percy]

Olam very critical of NZS Uruguayan farm management in the paper today:

1/ Even NZS's best established 'trial farm' has failed to achieve the prospectus aspirational goals.
2/ Mistakes made on the trial farm have been perpetuated over the rest of the farmland under management.
3/ Company has expanded too fast.
4/ The eastern hub area (16,000Ha), the largest area of the three hub areas owned by NZS is the least suitable land for dairying. The central and western farms account for 11,000Ha and 3,700Ha respectively.
5/ Supplementary feed will allow farms to reach their production targets, but at a big cost to profitability. The implication being that NZS does not fully understand the quality of the land they have.

Pretty hard hitting! Independent director Graeme Wong says 'watch this space' for the response.

I wonder how much of the underperformance is due to unusual weather patterns though?

Olam also noted that they want control of management so thay can fix these things, so a 50.1% result in the takeover offer will be fine. Lot's of food for thought...

SNOOPY
Reminds me of honest John, the old car salesman.You remember him;every old banger he sold was in first class condition,and every car you sold him needed so much money spent on it he could only give you a few pence for it.
If Olam is so unimpressed they would be best to go and start their own operation!!!! I would wish them well.

[Doyle]

56 Cents what does this mean for the takeover offer??? Haha maybe some more to play on this offer yet.

[winner69]

If this all goes ahead what will NZS have to pay PGW to buy out the management contract?

[Snoopy]

If this all goes ahead what will NZS have to pay PGW to buy out the management contract?


Presently NZS must pay 1% of the gross asset value ($US234m at 31-12-2009), or $US2.34m per year in what is now the 'Fund and Farm Management Agreement'. The earliest the agreement can be terminated is 8 years from 3rd November 2006, i.e. 3rd November 2014. Assuming gross asset values are roughly constant over this period, this means around $US10m, $NZ13m or NZ5c per share (based on 244.2m NZS shares on issue. Any straight compensation payout to PGW would likely be more than this to allow for the future value of the income stream that PGW would be giving up. However, that figure is likely to be reduced if NZS enters a 'preferred supplier agreement' with PGW. That's how I see things anyway.

SNOOPY

[Snoopy]

56 Cents what does this mean for the takeover offer??? Haha maybe some more to play on this offer yet.


Price got up to 57c before going back to 55c. No profit for those buyers if they sell into the takeover offer. I saw a report that South American interests were in NZ investigating a rival takeover offer. I guess the way the price has slipped back indicates this may be less likely now. Olam have said they will not make a higher bid than the current offer until well into 2011 at the earliest. However, this does not rule out the possibility of the existing offer being increased. My guess is that those buying at 55c are gambling on that.

SNOOPY

[Snoopy]

Olam offer posted to shareholders last week. Market price now well above the offer, so my guess is that Olam will not succeed at 55c. p7 says Olam has around $425m in cash, more than enough to mop up the $NZ40m odd worth of NZS shares needed to take control. But in the small print, section 10 of the Appendix, something very curious:
"financial assistance (from NZS) could be provided in connection with a refinancing of indebtedness incurred by Olam in connection with the offer."
Perhaps Olam are not as 'cash rich' as they are making themselves out to be? I don't like the sound of this. Anyone care to speculate on the underlying 'post takeover plan' by Olam?

SNOOPY

[percy]

Bit like the TV ads."But wait there's more' Yes Union Agriculture{who ever they are} bidding 60cents.I'll to see what happens but must admit not really interested in selling,as I like the future prospects of the company.

[bung5]

Bit like the TV ads."But wait there's more' Yes Union Agriculture{who ever they are} bidding 60cents.I'll to see what happens but must admit not really interested in selling,as I like the future prospects of the company.

Vamos..... a counter offer from Olam

[Well Fed]

But wait there's more' Yes Union Agriculture{who ever they are} bidding 60cents..
Read this attachment which came out in response to Olams offer.
2830

[Balance]

Read this attachment which came out in response to Olams offer.
2830

Great stuff, Well Fed.

Thanks.

[Snoopy]

Read this attachment which came out in response to Olams offer.


OK so 'Union Agriculture Group' is a private Uruguayan company that owns farmland in Uruguay. Yet UAG are being 'reviewed' by some US research house, 'Wellington West Capital Markets' (WWCM)? I see from the 'Applicable Disclosure Details' that:

1) In the last 12 months, WWCM, or its affiliates, have managed or co-managed an offering of securities by the subject issuer.
2) In the last 12 months, WWCM, or its affiliates, have received compensation for investment banking and related services from the subject issuer.

Do I take it from this that UAG is really a front for wealthy United States 'private equity' interests who want to buy up Uruguayan land?

SNOOPY

[Snoopy]

Do I take it from this that UAG is really a front for wealthy United States 'private equity' interests who want to buy up Uruguayan land?


Confirmed

http://unionagriculture.com/index.php/en/about-union-agriculture-group.html

"Union Agriculture Group emerged from the vision of its founders who believed that combining a long standing operational knowledge in Uruguay with new management techniques and financial structuring was the key to building a new kind of agriculture company, able to grow successfully in a changing and always more competitive industry."

"After having operated agricultural projects in Uruguay for more than 30 years, the team started acquiring land in 2005 in order to develop its own properties. Initial focus was into niche activities like blueberries, olives and honey with a second stage of getting into big scale animal and grains production."

"In 2008 all of the properties where rolled into a single private company and international institutional investors were invited to invest along the management team to take the company further into its next growth phase before seeking an international public listing. This company is Union Agriculture Group, also known by friends by its initials "UAG"."

SNOOPY

[Doyle]

Do PGW have an out clause for selling their shares? From emory I think not.

Therefore how much do UAG want. Are they quite happy with 50% of the company or do they want more, or less.

Total control would seem unrealistic for UAG given olam effectively sontrols 50% including PGW. Therefore even to get 50% would be a struggle for UAG. Are they happy I wonder to just get a major stake 20-30%. That seems plausible, anymore than this would seem unrealistic unless they are willing to pay a price premium.

[Balance]

Do PGW have an out clause for selling their shares? From emory I think not.

Therefore how much do UAG want. Are they quite happy with 50% of the company or do they want more, or less.

Total control would seem unrealistic for UAG given olam effectively sontrols 50% including PGW. Therefore even to get 50% would be a struggle for UAG. Are they happy I wonder to just get a major stake 20-30%. That seems plausible, anymore than this would seem unrealistic unless they are willing to pay a price premium.

PGW's sale to Olam is conditionally on Olam getting 50%.

No show of that given that UAG is bidding 60 cents. So PGW has an out effectively?

[Doyle]

PGW's sale to Olam is conditionally on Olam getting 50%.

No show of that given that UAG is bidding 60 cents. So PGW has an out effectively?

Thats an out for olam, Olams offer was conditional on getting 50%. The way I see it that gives olam an out but not PGW. Just my opinion, I'm not certain on that.

The problem with that is this deal looks headed for a stalemate with neither party getting more than 50%. Which is why I wonder if UAG is happy with less than 50%?

As per your post on PGW forum my opinion on NZS increases by the minute. Infact I would now need to to see something in the high 60's to convince me to sell lol. However I do laugh at these analyst suggesting NTA could be 90 cents. Realistic on the current market I can't see NTA being more than about 75 cents. Anyway time will tell when we get the valutation.

If olam come back with an offer in the high sixties it is possible the board may even endorse the offer I reckon.

Either way this deal has made me happy in what has been a rather sad year for my portfolio. Yippee.

[percy]

Early days.Nice to have another party join the party!!What fun we will have analysing the analysts.

[bung5]

Thats an out for olam, Olams offer was conditional on getting 50%. The way I see it that gives olam an out but not PGW. Just my opinion, I'm not certain on that.

The problem with that is this deal looks headed for a stalemate with neither party getting more than 50%. Which is why I wonder if UAG is happy with less than 50%?

As per your post on PGW forum my opinion on NZS increases by the minute. Infact I would now need to to see something in the high 60's to convince me to sell lol. However I do laugh at these analyst suggesting NTA could be 90 cents. Realistic on the current market I can't see NTA being more than about 75 cents. Anyway time will tell when we get the valutation.

If olam come back with an offer in the high sixties it is possible the board may even endorse the offer I reckon.

Either way this deal has made me happy in what has been a rather sad year for my portfolio. Yippee.

Same boat as you doyle. Looking for around the 70c .

[percy]

Reminds me of honest John, the old car salesman.You remember him;every old banger he sold was in first class condition,and every car you sold him needed so much money spent on it he could only give you a few pence for it.
If Olam is so unimpressed they would be best to go and start their own operation!!!! I would wish them well.

Shows what happens when there is an auction with more than one bidder.I think there is a way to go before this auction closes.

[Snoopy]

Shows what happens when there is an auction with more than one bidder.I think there is a way to go before this auction closes.


Quite right Percy. I am amazed to see shareholders like bung5 and Doyle have already decided on their exit price: before they know the winner of this auction, and before they have even set eyes on the independent valuation report! I understand that fundamental share valuation can be a daunting task and is not something that is within the skill set of all investors. But sheesh, if you are about to get a high powered consultants valuation report delivered in your lap -for free- and you are just going to ignore it, then what does that say about your judgement as an investor?

SNOOPY

[bung5]

Quite right Percy. I am amazed to see shareholders like bung5 and Doyle have already decided on their exit price: before they know the winner of this auction, and before they have even set eyes on the independent valuation report! I understand that fundamental share valuation can be a daunting task and is not something that is within the skill set of all investors. But sheesh, if you are about to get a high powered consultants valuation report delivered in your lap -for free- and you are just going to ignore it, then what does that say about your judgement as an investor?

SNOOPY

You think anyalst report is going to tell you anything major that you don't already know?

[Snoopy]

You think analyst report is going to tell you anything major that you don't already know?

Yes. I am looking for information on current farm sales within Uruguay for a start. Also the sensitivity analysis on various assumptions will be interesting. I have my own ideas on value of course. But in any event, I am not prepared to prejudge what the experts have to say.

SNOOPY

[Snoopy]

what will NZS have to pay PGW to buy out the management contract?

on 17th August NZS provides the answer:
"NZ Farming Systems Uruguay (NZS) has agreed with PGG Wrightson (PGW) to buy out the PGW Management Contract for the sum of $NZ4m, subject to bank/bondholder agreement and any necessary shareholder approval. PGW and NZS have further agreed to enter into a new contract that provides PGW with a preferred supplier agreement until at least 2019 and advice and consultation from PGW's most senior Uruguayan management until 2015."

Looks like a very cheap exit for NZS. last years Fund EBITDA for PGW was $4m of fees for one year alone!

SNOOPY

[bung5]

Yes. I am looking for information on current farm sales within Uruguay for a start. Also the sensitivity analysis on various assumptions will be interesting. I have my own ideas on value of course. But in any event, I am not prepared to prejudge what the experts have to say.

SNOOPY

All I am saying is that at as the current offer stands I would not sell lower than 70c

[winner69]

Yes Snoopy $4m seems to be giveaway price ... When i posted that i was seeing if anybody had any idea ... it was being touted as worth $25-$30m at the time

Should PGW shareholders feel hard done by? Or is there heaps to be made in being a preferred supplier for 10 years?

[Balance]

Yes Snoopy $4m seems to be giveaway price ... When i posted that i was seeing if anybody had any idea ... it was being touted as worth $25-$30m at the time

Should PGW shareholders feel hard done by? Or is there heaps to be made in being a preferred supplier for 10 years?

$4m plus $21m account payable plus 28.1m PGW shares x takeover price.

[percy]

Yes. I am looking for information on current farm sales within Uruguay for a start. Also the sensitivity analysis on various assumptions will be interesting. I have my own ideas on value of course. But in any event, I am not prepared to prejudge what the experts have to say.

SNOOPY

I am really looking to hearing Snoopy's,Balance and Winner69 analysis of the "expert"analysts views.No need to even think of selling.The fun is only starting and it will be a long time before 'the fat lady' sings.

[Snoopy]

All I am saying is that at as the current offer stands I would not sell lower than 70c


As it happens bung5, my best guess on the value of NZS agrees with your 70c price. However, the unknown is how NZS are going to fund their future farm development. A nightmare scenario would see Olam's bid fail, UAG acquring a 20% stake, no one being able to agree on what the right managment practice for the land is, and farm development halted while the company stays cashflow negative. Under that scenario, perhaps 70c might be pushing it? There are an awful number of unknowns swilling around in the pot. I am not prepared to say my own 70c valuation is right, and I will await the expert's report before making up my own mind on the bid(s)

SNOOPY

[Snoopy]

$4m plus $21m account payable plus 28.1m NZS shares x takeover price.


You forgot one 'benefit' to PGW Balance. The hit they have already taken on their NZS shares when the wrote down the value of their NZS stake last : -$39.2m. Offsetting that is the gain from FY2008 +$18.9m.

Finally the gain on 28.1m NZS shares is not (No. Shares)x(Share Price). It is:
(No. Shares)x(Share Price-Book Value Share Price).

So how well have PGW really done out of this?

SNOOPY

[winner69]

Snoopy .... cash is what they get .... soon ... but you need to forget the past ... thats all done and gone --- they going to have heaps more cash soon than they had yesterday ... isn't that good

[Doyle]

Quite right Percy. I am amazed to see shareholders like bung5 and Doyle have already decided on their exit price: before they know the winner of this auction, and before they have even set eyes on the independent valuation report! I understand that fundamental share valuation can be a daunting task and is not something that is within the skill set of all investors. But sheesh, if you are about to get a high powered consultants valuation report delivered in your lap -for free- and you are just going to ignore it, then what does that say about your judgement as an investor?

SNOOPY

Haha cut me a break Snoopy, just thinking out loud. Don't really think you appreciated the humour in my post, It was really a dig at myself for the fact that 2 months ago I would have happily taken 60, now I want 70 and by next week I will probably want 80 cents. There is a possiblility here that neither deal makes the finish line. What then?

[Snoopy]

There is a possiblility here that neither deal makes the finish line. What then?


We now know there are at least three corporate buyers active in the market for famland out there in Uruguay, and who knows how many private buyers? NZS I think would have plenty of customers for some of their landbank, at least that part of it that has not been signed over to a trustee as security for the existing bond issue, if they offered land at a fair price. They should just sell land and raise the money needed to develop the remaing farms that way. That means there would be no need to go to shareholders for more money.

SNOOPY

[Snoopy]

Snoopy .... cash is what they get .... soon ... but you need to forget the past ... thats all done and gone --- they going to have heaps more cash soon than they had yesterday ... isn't that good

OK I accept your cashflow argument Winner. Let's say PGW get their NZS shares away at 70c.

That means $4m+ $21m +28.1m x $0.7= $44.6m of cash coming in. But projected June 2010 debt from the prospectus was $769.2m, with the $21m debt repayment already factored in. That means the net improvement in PGWs debt position is around $23m in recent weeks. That is peanuts next to PGW's debt mountain.

SNOOPY

[Balance]

OK I accept your cashflow argument Winner. Let's say PGW get their NZS shares away at 70c.

That means $4m+ $21m +28.1m x $0.7= $44.6m of cash coming in. But projected June 2010 debt from the prospectus was $769.2m, with the $21m debt repayment already factored in. That means the net improvement in PGWs debt position is around $23m in recent weeks. That is peanuts next to PGW's debt mountain.

SNOOPY

That's a bit like saying that ANZ bank has a debt mountain relative to its shareholders' funds.

Accounting 101 : separate the finance book and assets from the parent company debt.

Finance company analysis is all about matching assets and liabilities, and avoiding bad debts like the black plague. If they match well, $1 billion debt is no problem. If they don't, you get Hanover and SCF!

Elementary, Snoopy, me ole hound dog.

[Snoopy]

That's a bit like saying that ANZ bank has a debt mountain relative to its shareholders' funds.
Accounting 101 : separate the finance book and assets from the parent company debt.
Elementary, Snoopy, me ole hound dog.


OK Balance, you are right. But I still think I can make you sweat over your PGW shares by the end of the week. I'll transfer to the PGW thread to get back on topic though.

SNOOPY

[bung5]

1,615,878 shares bought/sold @ 63c .... somebody is keen

[percy]

result out today read very well.Steady progress is being made.Things,like weather going right for them,except storm in Feb.I note positive comments,with milk production increasing from 44.6 mil litres last year to 68mil this year and expected to rise to 100mil this coming year.Confirms to me I will be holding onto my shares.
I also note more irrigation for the farms in the east.Sounds a bit like that poor land around Dunsadel that irrigation has turned into prime Dairy Farming land.It also looks as though land values are holding,although I would think the land out east may turn out to have been brought at very good prices.

[Doyle]

result out today read very well.Steady progress is being made.Things,like weather going right for them,except storm in Feb.I note positive comments,with milk production increasing from 44.6 mil litres last year to 68mil this year and expected to rise to 100mil this coming year.Confirms to me I will be holding onto my shares.
I also note more irrigation for the farms in the east.Sounds a bit like that poor land around Dunsadel that irrigation has turned into prime Dairy Farming land.It also looks as though land values are holding,although I would think the land out east may turn out to have been brought at very good prices.

DOnt forget that forecast production was 80-85 million litres. Result looks pretty bad when compared int that light. I may hold on to mine as well, but performance to date has been pretty dismal.

[ratkin]

Clearly the report made to sound as rosy as possible , amazing how easy it is to produce a glowing report when potential buyers are circling

[percy]

Reminds me of honest John, the old car salesman.You remember him;every old banger he sold was in first class condition,and every car you sold him needed so much money spent on it he could only give you a few pence for it.
If Olam is so unimpressed they would be best to go and start their own operation!!!! I would wish them well.
Hi ratkin,
Yes it certainly looks as though they had "honest John"write the result.Loved it.

[Meddler]

Olam now offering 70c.

[Balance]

Got to scoop up as much of these while it is so cheap. Don't really understand the low sp . esp with NTA value of 94c a share, even if the books value things a bit over the top.....

Well done, Bung5.

Whoever predicted an Olam full takeover last year got it bang on.

[bung5]

Well done, Bung5.

Whoever predicted an Olam full takeover last year got it bang on.

Thanks. I'm quite happy taking my 80% profit now and cashing out. move these funds to PRC

[phorm]

Olam are offering more because they can afford to and the fact that others are piling into the dairy scene in uruguay will help. The offer price is still far too low.

http://www.clarin.com/economia/economia_global/super-tambo-Bulgheroni-Uruguay_0_302969745.html

The Bulgheroni group involved in the Argentine petroleum industry is to invest USD 164 million in dairy farms in Uruguay. Their local company Estancias del Lago (Lake Farms) has announced a project in the Durazno (central) area of the country. The complex will have the capacity to milk 8800 cows and produce 109 million litres per year from grain fed animals. The project will be partly financed by the Interamerican Development Bank (BID in Spanish) through a USD 50 million loan.

[bung5]

I don't understand why ACC would sell their 7% stake for 70c today when they could wait a month to see if any offers come in over the top. No risk in waiting.
The only possible reason would be they wanting to boost up Olams chances early on of making 50%.

[Balance]

I don't understand why ACC would sell their 7% stake for 70c today when they could wait a month to see if any offers come in over the top. No risk in waiting.
The only possible reason would be they wanting to boost up Olams chances early on of making 50%.

This is going to apply pressure on UAG to increase its 60 cents offer?

[Snoopy]

I don't understand why ACC would sell their 7% stake for 70c today when they could wait a month to see if any offers come in over the top. No risk in waiting.
The only possible reason would be they wanting to boost up Olams chances early on of making 50%.

I find it surprising too Bung. Perhaps they have figured out that with so many shares already locked up by Olam, any competing bid is going to be impossible to get over the line?

I was also interested to see that Olam 'double jumped' their bid up to 70c when the next logical bid step would be 65c. Perhaps Olam figured that other bidders would be prepared to go to 70c, and this was their top bid price anyway. In a card game like bridge a 'double jump' bid is often a sign of relative weakness - a coded way of saying 'this is my final offer'. Olam may be thinking that if someone is prepared to bid more than 70c, they might just scrap their own takeover bid and take the profit on the near 20% stake they had before their first bid hit the market? The gamesmanship on this bidding process is certainly getting interesting.

SNOOPY

[Balance]

11 July 2010 Olam will take this thing out for debt value - I suspect that's their game.

Expect UAG to bid higher - this is once in a lifetime opportunity for the rich American investors and institutions to lay their hands on a huge dairy operation and land bank. They are not looking at the next 2 years - more like the next 20 years.

And what about New Zealanders? Typically short-sighted and selling out at 40 cents just 2 months ago!

[Snoopy]

And what about New Zealanders? Typically short-sighted and selling out at 40 cents just 2 months ago!

Balance, you can't deride people for selling out when it was unclear how the rest of the farm development would be funded. NZS is still losing money remember, and it will self destruct unless it can reach cashflow breakeven soon and profit soon thereafter. However, buying in after the white nights start to appear is a different matter. My NZS top up at 52c after the first Olam bid was announced is looking quite clever now. But unfortunately my overall average NZS entry price is 80c, so I am not cracking open any champagne yet!

Meanwhile NZS shares are trading hands on market at 72c today, above the Olam 70c offer. It looks like this story has at least another chapter to run.

SNOOPY

[Balance]

Balance, you can't deride people for selling out when it was unclear how the rest of the farm development would be funded. NZS is still losing money remember, and it will self destruct unless it can reach cashflow breakeven soon and profit soon thereafter. However, buying in after the white nights start to appear is a different matter. My NZS top up at 52c after the first Olam bid was announced is looking quite clever now. But unfortunately my overall average NZS entry price is 80c, so I am not cracking open any champagne yet!

Meanwhile NZS shares are trading hands on market at 72c today, above the Olam 70c offer. It looks like this story has at least another chapter to run.

SNOOPY

Snoopy, NZS is a long term play.

Anyone following Olam know that they are serious players with no less than the Singapore government (only US$250 billion+ in reserves) using them to buy them agribusinesses/resources overseas. They did not buy in to let NZS go under - they would have underwritten a capital raising and arrange funding.

Olam bought in Sept 2009 - NZS spent most of this year around 40 cents?

[Snoopy]

Anyone following Olam know that they are serious players with no less than the Singapore government (only US$250 billion+ in reserves) using them to buy them agribusinesses/resources overseas. They did not buy in to let NZS go under - they would have underwritten a capital raising and arrange funding.


I agree Balance, and this is why I wasn't a seller of NZS when it plunged to those low price depths. I am in for the long haul too. However the question was, what price a share issue? If PGW management had been forced to the market, Olam may have been able to pick up many cheap NZS shares. A 1:1 cash issue at 30c was a real prospect. I don't think buying in at 40c was a risk free prospect.

SNOOPY

[phorm]

The main message from the Board with developments today is that everyone should sell to make sure Olam get their 50.1 % over the line. But I bet they don't sell their own holdings! One should read between the lines of their statement here and I'm sure most will reach the same conclusion. Cash to finish development, rising prices for powder, a good mild winter and internal management now instead of PGGW's handout once p.a. will really start to make things work. Add to that the fact that other investors from Argentina for eg are piling into dairying in Uruguay (one with USD 164 M no less) plus a booming Brazilian economy next door (which buys dairy products from CONAPROLE) are added reasons for optimism.
Interesting to see the "independent" directors can officially now be called that.

[Silverlight]

First takeover date: 12 July 2010.

NZX short sell report (http://file.nzx.com/000/511/4104511.pdf): 201,213 shares of NZS sold short in August.

NZX Participant Rules (http://static.stuff.co.nz/files/NZX_Participant_Rules.pdf) 10.12.4(b) prohibits short selling during a Takeover.


I wonder what the NZX will do? Not sure if this is a breach of the Takeovers Codes as well!

[ShareTrader_Admin]

Not sure if you caught up with this but the NZ Shareholders Association has started a new series on Sharechat and the first article is about NZS
Read it here http://www.sharechat.co.nz/blog/spotlight-on-new-zealand-farming-systems-uruguay/

[percy]

Not sure if you caught up with this but the NZ Shareholders Association has started a new series on Sharechat and the first article is about NZS
Read it here http://www.sharechat.co.nz/blog/spotlight-on-new-zealand-farming-systems-uruguay/

Thank you pointing out the article.

[ETC]

What is the likeliness of Olam not reaching the 50.1% that they’re seeking?

[bung5]

What is the likeliness of Olam not reaching the 50.1% that they’re seeking?

on 42 % now with just over 10 days to go. Looking like they are on the way there. I suspect they will get a rush in the days leading up to closing. Still a risk they won't make it thou and the offer won't be extended.

[mikew]

What is the likeliness of Olam not reaching the 50.1% that they’re seeking?

if olam takeover failed, I reckon the sp will back to where they were.

[mikew]

if olam takeover failed, I reckon the sp will back to where they were.

so i think olam can get 50.1% holding before closing day if NZS shareholders don't want get stuck.

[bung5]

I sold out early for 69c rather take the cash few weeks ago. already has made up the difference reinvested

[mikew]

smart boy bung5

[ETC]

Thanks for the info/thoughts

[duncan macgregor]

My view is with a return of four or five pc at best plus a capital gain at the end, less feeding those swilling at the trough, is a poor investment especially if I want a decent dividend return in between times. Farming as I said before is a good life style family business, but definately not a corporate business venture. It has been tried before, all over the world in different cicumstances, but never once proved a success. The winners here are those swilling at the trough in over paid jobs at your expence never once getting up to milk the cows. Macdunk

[elZorro]

My view is with a return of four or five pc at best plus a capital gain at the end, less feeding those swilling at the trough, is a poor investment especially if I want a decent dividend return in between times. Farming as I said before is a good life style family business, but definately not a corporate business venture. It has been tried before, all over the world in different cicumstances, but never once proved a success. The winners here are those swilling at the trough in over paid jobs at your expence never once getting up to milk the cows. Macdunk

Those might be valid points Macdunk, but it is Uruguay, not NZ. Plenty of cheap labour over there, the extra capital might make it work. And isn't it possible in the short term, that Olam might have to pay over the odds to get the last of their several million shares within the few days that are left?

[bung5]

My view is with a return of four or five pc at best plus a capital gain at the end, less feeding those swilling at the trough, is a poor investment especially if I want a decent dividend return in between times. Farming as I said before is a good life style family business, but definately not a corporate business venture. It has been tried before, all over the world in different cicumstances, but never once proved a success. The winners here are those swilling at the trough in over paid jobs at your expence never once getting up to milk the cows. Macdunk

I think I have heard you say this at least 4 times. Even when I was buying as low as 37c nearly a 1/3 of the NTA value of the company. The winners are those who bought then and are now selling out for 70c

[bung5]

Can somone explain to me the tie up with PGWrihtsons.....if there is one?.....and how do we find out about these Uruguay tours, if and when the next one is? Anyone think these shares are a "screeming" bargain at the moment or just fairly priced sub 40c?

Gr8day hope you picked up shares in the end

[Snoopy]

if olam takeover failed, I reckon the sp will back to where they were.


UAG have already expressed interest at 60c. Despite UAG pulling their offer, I think 60c is the downside if Olam pulls the pin on their offer. It was rather strange of Olam to say they will not extend the offer past September 24th if they don't get their 50.1% shares. Perhaps Olam were confirming the original deadline was just a gee up to investors to accept promptly? Perhaps they consider with the director recommendation behind them 50.1% of shares are in effect in the bag already?

Having put aside money for the upcoming rights issue I, like the NZS directors, won't be selling any of my NZS shares to Olam. My biggest issue is the underlying CAPM valuation method used. The implied discount factor of 12.5% is derived from an historic cost of equity of 14.9%. IMO this is high because of historic funding problems NZS has faced. The Olam buyout and subsequent capital raising will fix this. So again in IMO it is quite inaccurate to assume this 14.9% equity cost figure will be so high after the Olam restructuring, as the CAPM calculation requires. In addition I believe the 2% discount allowance that Grant Samuel for Uraguayan denominated costs getting out of control is also too high, because US interest rates are being kept artificially low verses other country bond rates. Therefore in my assessment, with a discount rate of around 10%, that 70c from Olam is still below fair value.

In addition because the need to raise capital has been so well documented those shareholders that can't or won't put more capital into the company will have already sold into the Olam offer after it closes. So I see those shareholders that remain hanging onto their shares in anticipation of new cheap shares to be theirs via the rights issue. If my logic is right, and all other things are equal, we should see the NZS share price rise in the short term above 70c if the Olam takeover offer is successful.

SNOOPY

[bung5]

Well I will be one of the first buyers if the share price does drop if the deals fails. On the other hand happy to see the company succeed and good luck to those that continue holding.

[mikew]

UAG have already expressed interest at 60c. Despite UAG pulling their offer, I think 60c is the downside if Olam pulls the pin on their offer. It was rather strange of Olam to say they will not extend the offer past September 24th if they don't get their 50.1% shares. Perhaps Olam were confirming the original deadline was just a gee up to investors to accept promptly? Perhaps they consider with the director recommendation behind them 50.1% of shares are in effect in the bag already?

Having put aside money for the upcoming rights issue I, like the NZS directors, won't be selling any of my NZS shares to Olam. My biggest issue is the underlying CAPM valuation method used. The implied discount factor of 12.5% is derived from an historic cost of equity of 14.9%. IMO this is high because of historic funding problems NZS has faced. The Olam buyout and subsequent capital raising will fix this. So again in IMO it is quite inaccurate to assume this 14.9% equity cost figure will be so high after the Olam restructuring, as the CAPM calculation requires. In addition I believe the 2% discount allowance that Grant Samuel for Uraguayan denominated costs getting out of control is also too high, because US interest rates are being kept artificially low verses other country bond rates. Therefore in my assessment, with a discount rate of around 10%, that 70c from Olam is still below fair value.

In addition because the need to raise capital has been so well documented those shareholders that can't or won't put more capital into the company will have already sold into the Olam offer after it closes. So I see those shareholders that remain hanging onto their shares in anticipation of new cheap shares to be theirs via the rights issue. If my logic is right, and all other things are equal, we should see the NZS share price rise in the short term above 70c if the Olam takeover offer is successful.

SNOOPY

I insist that if olam takeover failed, the sp will drop below 50c, UGA already left the table, the game is over.

[bung5]

just under 5% to go. Cutting it close

[elZorro]

just under 5% to go. Cutting it close

Olam now hold about 56% of NZS, and going up each day. Price holding at 69c/70c. At what point will the market decide enough of the company setup has been transferred at a bargain price? Let's wait and see if the new capital can help turn a profit quickly.

Disc: bought some this month.

[Meddler]

Make that 61% as of the last announcement. I'm happy to continue to keep the small holding I've got for now, though would definitely have accepted the offer if I thought it likely I'd be wanting to sell the shares in the short term.

[Snoopy]

At what point will the market decide enough of the company setup has been transferred at a bargain price?


Some $US60m is needed to complete dairy farm development. A 2 for 3 cash issue at $NZ0.5 will raise $NZ81m, or near enough to $US60m. I guess if remaining shareholders can afford to shell out $1 for every 3 shares they own, then enough of the company will have been transferred to Olam!

SNOOPY

[Snoopy]

Olam now hold about 56% of NZS, and going up each day. Price holding at 69c/70c.


Director Graeme Wong has let 55,000 of his 145,000 shares go to Olam, leaving him with 90,000. Norgate has sold 600,000 shares into the offer leaving him a mere 15,000. As the tide goes out one director selling out to get cash for the rights issue and to make sure he can look his new masters at Olam in the eye. The other director revealed as having no clothes on? Norgate to lose his NZS directorship while Wong will keep his. Only a few hours to go before the offer closes. Anyone know how Olam with a 70% shareholding may effect NZS's NZX50 index rating? Will the lessening of liquidity make a difference?

SNOOPY

[COLIN]

"Olam/Louis Dreyfus merger, to create world's third largest agricultural trader." Olam seems to have come a very long way in a very short time. One tends to be very wary of such rags to riches companies, noting the likes of Allco, MFS, Babcock & Brown, etc., but I am just an old fogie.

[mikew]

Share price is falling, I reckon if it break through 60c resistant point next level will be 50c, watching with interest.

[Bill Smith]

Well Olam have 78% (at least) which means they can do as they want with NZ Farming Systems. I don't hold, but if I did I would be selling ASAP.

[Snoopy]

Well Olam have 78% (at least) which means they can do as they want with NZ Farming Systems. I don't hold, but if I did I would be selling ASAP.

But why sell today at 64c, when there was a firm offer on the table two days ago at 70c, which had been well signalled? It makes no sense, (unless you are some kind of index fund that is being forced to sell because of reduced NZS liquidity- hence my previous question?)

SNOOPY

[COLIN]

But why sell today at 64c, when there was a firm offer on the table two days ago at 70c, which had been well signalled? It makes no sense, (unless you are some kind of index fund that is being forced to sell because of reduced NZS liquidity- hence my previous question?)

SNOOPY

I guess its a question of concern about the likely treatment of minorities. I am not an NZS holder but, if I was, I would be selling out too. I still have painful memories of some very poor treatment of NZ minorities by an Asian-based company, SEA, once it had taken control of Trans-Tasman (formerly Robert Jones Investments.) Also, remember what happened to BIL.

[h2so4]

I guess its a question of concern about the likely treatment of minorities. I am not an NZS holder but, if I was, I would be selling out too. I still have painful memories of some very poor treatment of NZ minorities by an Asian-based company, SEA, once it had taken control of Trans-Tasman (formerly Robert Jones Investments.) Also, remember what happened to BIL.

What did happen when SEA took control of RJI?

[Snoopy]

I guess its a question of concern about the likely treatment of minorities. I am not an NZS holder but, if I was, I would be selling out too. I still have painful memories of some very poor treatment of NZ minorities by an Asian-based company, SEA, once it had taken control of Trans-Tasman (formerly Robert Jones Investments.) Also, remember what happened to BIL.

FWIW Colin I agree with you that Asian managed companies listed in NZ have a poor record of looking after the interests of minority shareholders. Another one is MCK hotels which seems to have hijacked NZ capital to invest in shonky deals in Asia. The CEO was later dismissed for ignoring his board and embezzelling shareholder funds IIRC, in a case that is still ongoing. And yes I do wonder about Olam growing so fast from apparently out of nowhere.

However, I think we can take heart from the Olam directors stating publicly that they intend to treat all shareholders equally. I think in many Asian cultures they go to almost any degree to avoid 'loss of face' by going against their own stated public direction. Also those shareholders that remain I would pick are committed to seeing the project through now. I was surprised that so many sold out, which makes me rather glad I didn't! Perhaps those who did sell out may like to consider other farming opportunities, like one I have ferreted out on the sly?

SNOOPY

[Snoopy]

Those who did sell out may like to consider other farming opportunities, like one I have ferreted out on the sly?


That opportunity I was referring to is below....

NZX Press Release: Upcoming New Float Opportunity: "Uruguayan Farming Systems New Zealand" (UFS)

The New Zealand Stock Exchange is pleased to announce that a group
of Uruguayan businessmen and farmers have put together a
multimillion-dollar investment proposal to purchase New Zealand farms.
They aim to bring Uruguayan farming, business practice and expertise
to New Zealand. An application was filed in secret last month to avoid
finance minister Bill English's new foreign investment rules regarding
farm ownership.

Manager director of UFS, Uruguayan Groupo Verte explains:
"Many lessons have been learned by the New Zealanders who came
over to Uruguay and tried to tell us how to run things." "We now feel
the time is right to save the New Zealand farming economy and that is
what the adoption of Uruguayan farming practice will offer to all New
Zealanders."

Capital Strategy

"Decommissioning irrigation systems on the properties we purchase will
minimize capital requirements and avoid future share dilution." Says
Verte. "This will eventually reduce the nitrogen run off into New
Zealand rivers as farms are destocked to ecologically sustainable
levels." "We will be working with Transpower to pull out the excess
power lines that supply these farms." "This will bring eco-credits and
profits from the recycled copper cables into the hands of shareholders."

Animal Welfare

"We are working with Massey University to increase the level of care of
New Zealand farm animals to Uruguayan standards." "Veterinarian
courses will now be conducted remotely by internet."said Verte. "Each
Vet student will be based 'on the farm' and made personally
responsible for five cows."

Distance to Market Dilemma

"Your own country has attempted to overcome your tyranny of market
distance." notes Verte. "We understand that recent planned
earthquakes in Canterbury have moved the entire South Island three
metres closer to those important Northern Hemisphere markets." "But
we will be organizing additional travel incentives." "These will be
United States based ship cruises to New Zealand under the brand
banner 'Hunger Plunder Downunder'. " "It means that Americans will
be able to eat Jersey steak and drink New Zealand milk shakes in a
more carbon friendly way."

Management Practice

"Modesty will be the mode of management we adopt." says Verte. "In
fact my fellow Uruguayan directors are so modest they don't want their
identities revealed." "For board meeting purposes they will be
'absentee directors'." "We have proved in Uruguay absentee land
owners can still make money by just leaving the cows to chew their own
cud."

"NZX primary listing rules require at least two independent New
Zealand domiciled directors." "We haven't made the final
appointments." admitted Verte. "But New Zealand investors now
expect to be ripped off, and we intend to meet those investor
expectations." "Consequently we will be looking for a New Zealander
of Scots descent, to give the impression of frugality but also someone
who can spin investors a yarn." " 'A McConman' if you like."

"Another thing lacking in New Zealand corporate farming practice has
been direct animal representation on the board." added Verte. "To this
extent, we have linked up with 'Craigs Investment Partners'. From
their Northern Angora herd they have selected a 'Craig's Norgoat' to be
our 'near bovine bloke' on the board.

Verte summed up "We expect this investment opportunity to appeal to
both Copper market bulls and those who just plain don't want to do any
work." An initial investor presentation will be held sometime in early
summer in the Auckland domain under the biggest tree we can find.
It is suggested potential investors bring their own sombrero.

Press Release ends

[bung5]

ahaha .. you have a lot of spare time on your hands snoopy?

[elZorro]

Snoopy, did you write that? Brilliant, you could charge for the word, submit it somewhere..
Now I really am worried about my NZS shares :mellow:

[percy]

Well done Snoopy.Great post.

[Snoopy]

ahaha .. you have a lot of spare time on your hands snoopy?


It only took an hour to write and another hour to polish Bung. Not much more time that the average person spends in front of their TV screen each night. It was the four years as a shareholder frustratingly and subconsciously filing away the background information that took the time!

BTW what is your connection to Buenos Aries? Are you in a position to supply some neighbourly insights?

SNOOPY

[bung5]

It only took an hour to write and another hour to polish Bung. Not much more time that the average person spends in front of their TV screen each night. It was the four years as a shareholder frustratingly and subconsciously filing away the background information that took the time!

BTW what is your connection to Buenos Aries? Are you in a position to supply some neighbourly insights?

SNOOPY


Will be going to uruguay hopefully in the next couple of months. Was also planning on the shareholder tour when they next do one... but I am not a shareholder anymore. However may look to buy back in if they go low enough!

[ratkin]

I sold at 70c but if they keep falling i too will be back in

[Doyle]

I sold at 70c but if they keep falling i too will be back in

I only have 10000, shares left and am a bit gutted I didn't i didn't sell those too. But they are getting close to a level where I may take on some more again. If things go well, Olam may take out the rest of us at a premium in 12 months time.

Oh well you win some/ you lose some.

[ratkin]

50c would be good , or might they go even lower?

[percy]

well I hung on to my wife's small holding.Still like the story.Have money put aside for the cash issue.Happy to add to her holding.

[Snoopy]

50c would be good , or might they go even lower?


If you believe Grant Samuel, NZS is worth between 64.9c and 79.2c. Take away a 20% premium for control you get between 52c to 63c. Of course we are all assuming the coming cash issue will be at a discount to market value. But if Olam wants to mop up some more shares they may not issue the cash issue at a discount. That way they would still be playing 'fair' and be in a position to pick up some more shares when remaining shareholders balk at taking up their expensive (compared to market) but still cheap (compared to valuation) shares.

SNOOPY

[mikew]

If you believe Grant Samuel, NZS is worth between 64.9c and 79.2c. Take away a 20% premium for control you get between 52c to 63c. Of course we are all assuming the coming cash issue will be at a discount to market value. But if Olam wants to mop up some more shares they may not issue the cash issue at a discount. That way they would still be playing 'fair' and be in a position to pick up some more shares when remaining shareholders balk at taking up their expensive (compared to market) but still cheap (compared to valuation) shares.

SNOOPY

Anything could happen because olam now fully control this company.At this stage I definitely don't want to hold this stock.

[COLIN]

What did happen when SEA took control of RJI?

Just go to the TTP thread. You will find enough there, I think.

[COLIN]

It only took an hour to write and another hour to polish Bung. Not much more time that the average person spends in front of their TV screen each night. It was the four years as a shareholder frustratingly and subconsciously filing away the background information that took the time!



SNOOPY

I'm most impressed, Snoopy. You could write the script for a Blackadder series.

[kiora]

PS Now New Zealand is toooo small for Doorgate.Looking for opportunities overseas BIG enough!!!!!

[elZorro]

I'm still a shareholder, received data for a meeting and info about the new PGW deal regarding management fees. I think there was a thousand-fold error in the table of annual fees, well I hope there was.
But in any case, here's millions of dollars being siphoned off a loss-making company to support another company (PGW) that is having a few issues itself. In most years the fees couldn't be paid, and interest is accrued at 10-11%. Looks like some of this is being written off, 4mill settlement.

I was a shareholder in a very small business that had that done to it, and it's not pleasant. The larger party pretends they have intellectual property and nous, that this is the way it has to be done, and that those fees are sensible and prudent. If they're so smart, why hasn't PGW done a lot better over the years? It's gone from crisis to crisis. Will the same NZS management team be kept on? Not wholly I hope.

While I've done little research as yet, I'm hoping the new capital from Olam will quickly allow NZS to show a profit.

[percy]

While I've done little research as yet, I'm hoping the new capital from Olam will quickly allow NZS to show a profit.[/QUOTE]

The only thing missing has been capital.With Olam supporting a capital raising,problem fixed.It will still take a few years before all farms are developed,so do not expect any dividends for a few years.I have always liked the idea,do not have a large exposure,and an prepared to wait a few years. Problem has always been mad management brought too much land without the capital to develope it.With management now in house,problem fixed.The positive is we do not have to buy more land,in fact we have extra land.!
There was a very positive article in NZ Herald either yesterday or the day before that ,I think you should read elZorro.Just remember you will have a rights issue coming up.I could not see the point of selling our shares below the 90cents asset backing.should the share price fall out of bed I may add to our holding.I saw Olam buying in,then not liking what they saw,then deciding the idea was good,and that they could make it better,so they made a offer to take control.Now that they have control,lets see what happens.

[percy]

I found the article.went to nz herald entered,search,"take over take-up a surprise for olam"

[elZorro]

I found the article.went to nz herald entered,search,"take over take-up a surprise for olam"

Hi Percy, thanks for reference to the article, here's the link: (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10677021)

I have spoken to another shareholder a few weeks ago, he also advised that the new capital base should make a great deal of difference to NZS, and recommended a share purchase. Certainly the books show a strong growth in income already, so when the one-off writeoff (or resale) of overpriced land are removed from the system, it should look a lot better.

[Snoopy]

the new capital base should make a great deal of difference to NZS

Appendix Note 10 in the original Olam offer had me head scratching:
"No financial assistance (directly or indirectly) is to be provided by NZFSU for the purposes of or in connection with this offer. It is possible, however, that following the closing of this offer, financial assistance could be provided in connection with a refinancing of indebtedness incurred by Olam in connection with the Offer."

Does this mean that white knight Olam really has no capital to offer NZS and is just operating on borrowed money? That is not the impression Olam gave in the big print!

SNOOPY

[Well Fed]

I have just returned from the investor trip to Uruguay
Olam have got a bargin.

[ratkin]

Think i will stay out now , will reconsider further down the track when dividends are imminent

[percy]

I have just returned from the investor trip to Uruguay
Olam have got a bargin.

Please tell us more.

[Snoopy]

Anyone know how Olam with a 70% (now 78%) shareholding may effect NZS's NZX50 index rating?


The NZX answered my question:
"8 October 2010 - NZX Indices announce that following the October Monthly Index Update, DNZ Property Fund (DNZ) will be added to the NZX 50 Index to replace New Zealand Farming Systems Uruguay (NZS).
NZS will be removed at this Monthly Index Update because it ranks below 65th. This follows the recent acquisition of a 78% stake in NZS by Olam International. Ranking for the NZX 50 is by NZ Free Float Market Capitalisation, from which large strategic holdings are excluded."

Some weakness can now be expected in NZS as those index funds sell out. However, I would view this as a buying opportunity. I made a killing on RBD when the same thing happened.

SNOOPY

discl: hold NZS

[percy]

I have just returned from the investor trip to Uruguay
Olam have got a bargin.

Todays announcement confirms you were right on the button.More posts from you please Well Fed.

[Snoopy]

Todays announcement confirms you were right on the button.More posts from you please Well Fed.

What did you find most encouraging Percy? The fact that they are in breach of their banking covenants:

"NZS has a covenant in its bank syndicate funding requiring cashflow to be at
least 1.2 times debt servicing, with this covenant to apply for the first
time at June 2011. Given that farm development is still in progress, NZS
expects to require a waiver to this covenant and has accordingly initiated
discussions with the bank syndicate."

The reduction in the scale of development

"Effective dairy area is expected to be around 16,000 hectares, or 20% less
than previously planned. Irrigated area is expected to be around 7,000
hectares, which represents approximately 44% of the total dairy area (50%
previously). "

Or the fact that 'long term' our investment has halved in value?

"While this financial performance is less than half the performance predicted in the previous
business plan, it is considered realistic by the Board."

SNOOPY

[percy]

What did you find most encouraging Percy? The fact that they are in breach of their banking covenants:

"NZS has a covenant in its bank syndicate funding requiring cashflow to be at
least 1.2 times debt servicing, with this covenant to apply for the first
time at June 2011. Given that farm development is still in progress, NZS
expects to require a waiver to this covenant and has accordingly initiated
discussions with the bank syndicate."

The reduction in the scale of development

"Effective dairy area is expected to be around 16,000 hectares, or 20% less
than previously planned. Irrigated area is expected to be around 7,000
hectares, which represents approximately 44% of the total dairy area (50%
previously). "

Or the fact that 'long term' our investment has halved in value?

"While this financial performance is less than half the performance predicted in the previous
business plan, it is considered realistic by the Board."

SNOOPY

milk price most encouraging.

[duncan macgregor]

Think i will stay out now , will reconsider further down the track when dividends are imminentI would think Ratkin you will buy in at less than half todays share price in a couple of years time. This company will never pay dividends that are higher than your local bank interest rate its simply not realistic. Macdunk

[Snoopy]

milk price most encouraging.

Have now had a chance to digest the new farm management plan (HY2011) put into place by Olam. It is interesting to compare this with what the old Norgate lead management were up to:

Total Irrigated Land Target: Old: 10,000 ha, New: 7,000 ha
Total Milking Land Target: Old 20,000 ha, New 16,000 ha
Supplementary Feed target: Old: 0% , New: 35% US32c/l ($NZ6.18/kg milk solids)
Further Capital Needed: Old: USD85m-USD95m, New USD100m-110m
Ultimate No. dairy Sheds Needed: Old: 49, New: 50
Milk/Cow/Day Target: Old: 17 l/day, New: 16.4 l/day

It is also interesting to compare the operational performance of HY2011 to FY2010

Milk/Cow/Day Actual: FY2010: 11.3 l/day, HY2011 13.3l/day
Milk Price Received Actual: FY2010 US28.3 c/l ($NZ5.46/kg milk solids) , HY2011 US32.9c/l ($NZ6.35/kg milk solids)

On paper this looks like vinidication of the new supplementary feeding plan. This supplementary feeding regime also comes with a capital cost. Feed mills, in shed feeding systems, feed pans and storeage pads will all need to be paid for , and this is largely the reason for the projected increase in capital expenditure. But overall it looks to me as though Norgate et al were wrong in that trying to impose the New Zealand way on Uruguay was wrong. Any farmers/shareholders like to add their comments on how the new managment regime is likely to pan out long term?

SNOOPY

[Lizard]

A dairy farming friend told me that he had looked at the Uruguay area and that it could not be farmed "NZ style" as the land was too dry during parts of the year - looked lush at some times of year, but barren at others. Also that NZS were not good at liaising with and using local knowledge. So new plan makes sense to me - though probably will never provide the original return on capital that was predicated on "NZ style".

[percy]

Sorry I sold out as I thought it was going nowhere.
yes/no. If you look at the Dairy Farms at Dunandel.This was very poor dry land which could only carry a few sheep.In summer it was barren.Land worth very little.some forests,rest sheep farms.Today you go past it.massive dairy farms.1000s of cows.Synlaie dairy factory.Farms now worth millions.
Back to NZS.No one has said lets forget it and go back to sheep farming.The price of milk continues to raise.this will drive the success or failure of the company.
the very successful Tasmanian dairy industry was founded and driven by New zealanders who proved to the know all Aussies the NZ dairying way was the right way,so it has been done before.

[Well Fed]

Check out this
http://www.olamonline.com/newsroom_details/view/0/4daffba8-470c-4cd2-a6bf-15247c3410df
Another take over offer

[percy]

Check out this
http://www.olamonline.com/newsroom_details/view/0/4daffba8-470c-4cd2-a6bf-15247c3410df
Another take over offer

Thanks for the link.Wrong again.!!

[Well Fed]

A Cow is a cow both in NZ and Uruguay. The more she eats, the more milk she makes.
DairyNZ have a rule of thumb that in NZ you can make money out of bought in supplements if you pay no more than 5% of the milksolids price / kg Drymatter. It appears that our bought in feed cost in Uruguay fall under the 5% mark.

[Snoopy]

DairyNZ have a rule of thumb that in NZ you can make money out of bought in supplements if you pay no more than 5% of the milksolids price / kg Drymatter. It appears that our bought in feed cost in Uruguay fall under the 5% mark.

p10 NZS HY2011 Report. Cropping & Feed Costs $7.902m (note 5) Milk Sales $18.141m (note 3)

$7.902m/$18.141m = 43.6% >> 5%!

SNOOPY

[Lizard]

Check out this
http://www.olamonline.com/newsroom_details/view/0/4daffba8-470c-4cd2-a6bf-15247c3410df
Another take over offer

Good find Well Fed.

Snoopy, you are off-beam with that calc. Not sure if there is a comparable "factory gate" price for milk on a "solids" content basis in Uruguay, but maybe Well Fed can point to sources to calculate.

[Well Fed]

Good find Well Fed.

Snoopy, you are off-beam with that calc. Not sure if there is a comparable "factory gate" price for milk on a "solids" content basis in Uruguay, but maybe Well Fed can point to sources to calculate.

Yes the cost of cropping and feed on page 10 are the wrong ones to use.

Farm Gate price in U is reported as cents litre but is calculated on solids content.
In NZ our milksoids (ms) is 8.72%.
NZS cows have been at 6.88% but going forward that will rise rapidly with the NZ genetics.
Lets budget on 7.00% for now

7% / 1 = 14.3 litres of milk to make 1 kg of comparable milksolids
14.3* .38 cents US / litre = $5.43 US / kg ms
$5.43 / .75 (NZ US exchange rate) = $7.24 NZ per KG of ms

In U the farm gate price changes during the season. Currently the price is higher than .38 cents US.

$5.43 US * 5% = 27 cents US / kg of dry feed, that DairyNZ (with a comfortable margin) can say that profit will be made from feeding your cows better with additional purchased feed.

27 cents * 95% (Drymatter % of most concentrates) = $256 US / tonne of feed is the threashold.

A good operater (as our current Managing Director is) could pay higher and still make good profits.

[Snoopy]

Yes the cost of cropping and feed on page 10 are the wrong ones to use.

Farm Gate price in U is reported as cents litre but is calculated on solids content.
In NZ our milksoids (ms) is 8.72%.
NZS cows have been at 6.88% but going forward that will rise rapidly with the NZ genetics.
Lets budget on 7.00% for now

7% / 1 = 14.3 litres of milk to make 1 kg of comparable milksolids
14.3* .38 cents US / litre = $5.43 US / kg ms
$5.43 / .75 (NZ US exchange rate) = $7.24 NZ per KG of ms

In U the farm gate price changes during the season. Currently the price is higher than .38 cents US.

$5.43 US * 5% = 27 cents US / kg of dry feed, that DairyNZ (with a comfortable margin) can say that profit will be made from feeding your cows better with additional purchased feed.

27 cents * 95% (Drymatter % of most concentrates) = $256 US / tonne of feed is the threashold.

A good operater (as our current Managing Director is) could pay higher and still make good profits.

Thanks Well Fed. I very much appreciate the clarification.

SNOOPY

[Snoopy]

Check out this
http://www.olamonline.com/newsroom_details/view/0/4daffba8-470c-4cd2-a6bf-15247c3410df
Another take over offer


Same price as the last offer! Is this really another takeover offer, or a repeat of the last one?

Ostensibly the offer is to offer investors the chance to bail out, because more dollars will be required to shore up the farm infrastructure. But what Olam carefully hasn't mentioned is the effect that the higher expected milk price will have on the NZS valuation.

Have a look at p42 of the Target Company statement from Grant Samuel that was the response to the last offer. The effect of the increase in milk price from US29c/l (as Grant Samuel assumed) and US32c/l (as Olam are now telling us is realistic) equates to NZ27c per share (not a misprint)! All else being equal Olam would have to offer NZS shareholders NZ97c per share given their own updated data for their new offer to be as fair as their old one.

Of course all else isn't equal. The NZD/USD exchange rate has risen from 70c to almost 80c, roughly 10%. But the long term farm planning either by good luck or good management has gone well since Olam took the reins. If the discount rate that GS used of 12.5% to value future cashflow is still appropriate, we can expect the value of NZS shares to have risen by about 6.25% simply because things are progressing to plan. I acknowledge the increased capital expenditure required will reduce shareholder returns, but not by that much (we are talking only an extra $US10m after all)

Overall I see 90c as the bare minimum Olam will have to pay to take minority shareholders out. IMO the new 70c offer is now ludicrously low. Grant Samuel will tell you that in a months time (if you can hang onto your shares that long), but I will tell you now. Fellow shareholders, don't fall for it!

SNOOPY

[Snoopy]

Overall I see 90c as the bare minimum Olam will have to pay to take minority shareholders out. IMO the new 70c offer is now ludicrously low. Grant Samuel will tell you that in a months time (if you can hang onto your shares that long), but I will tell you now. Fellow shareholders, don't fall for it!


Olam say
"The Offer gives shareholders another opportunity to exit at the same price offered in Olam’s 2010 Takeover Offer, despite the increase in capital requirements and changes to the business outlook for NZFSU compared with the earlier NZFSU Board’s forecasts at the time of the previous offer."

However because the NZD has risen against the USD by 10% since the last offer, every NZD that Olam raise will buy 10% more USD compared to six months ago. Thus in NZD terms the capital requirements are unchanged from the previously announced position. Consequently I believe that he above statement from Olam is misleading.

SNOOPY

[Snoopy]

Sorry I sold out as I thought it was going nowhere.


When one of the most sensible investors on this forum sells out for no good reason, then we know the NZS share has truly hit rock bottom! Sorry you are out Percy. I am going to hang in there for the full 90c per share final offer.

SNOOPY

[percy]

I did not really want to sell as I felt the long term out look was good.BUT,I was very keen to buy some AWF,and had to sell something to fund that purchase at $1.05on 2/11/11.At the time I thought NZS was my weakest share.

[Joshuatree]

Snoopy, Thanks. I refused to sell my shares believing the offer was underpriced and the long term value was still there but it was a lonely place to be until i read your posts ,cheers

[Well Fed]

The following is a news release that comes from a group of minority NZS shareholders.
Take note of the offer to purchase shares at the end.

If you want to be connected to this group email our administrator Barry Brook barrybrook@paradise.net.nz
The news release:

Olam offer for NZ Farming Systems Uruguay not good enough
The latest offer for the remaining 20% of the shares in NZ Farming Systems Uruguay is just not good enough says one of the larger minority shareholders, Rob Poole.
Poole, a dairy farmer in Taranaki who has visited Uruguay on a number of occasions, says the offer of 70 cents per share does not recognise the fundamental improvement in the business in Uruguay and the surrounding factors such as increased land and stock prices since the last offer was made
Uruguay has experienced the same positive developments in dairying in the last twelve months as New Zealand has and the milk price farmers are receiving there is comparable to the Fonterra price NZ farmers are receiving. As a consequence, dairy cow prices have increased and land prices have also increased.
So Olam is offering 70 cents per share, the same price it paid last August when the last takeover offer was made. How can that be a fair price when significant positive changes have happened in the meantime says Poole. The price being offered seems to build nothing in for the improved outlook since last August.
Media reports from Uruguay in February this year quoted an 13 % rise in land prices as a result of a number of positive factors affecting agriculture in the country. Prices for crops such as soy and milk and beef prices have all increased substantially compared with a year earlier.
Also, at the half year NZ Farming Systems reported positive improvements in the farming operations and increased their year end financial performance forecast for the year to end of June. This increase not only incorporated an increased milk price , but also a 20% increase in milk production. The company increased its earnings (EBIT) forecast for the 20010/11 year by US$ 4.5 million at the half year. Clearly operational performance has improved under Olam’s management but again, says Poole, the 70 cents per share price offered does not reflect this improvement.
It is also noteworthy, says Poole, that the offer is being made before the full year result and annual report and so minority shareholders are not all that well informed. For example it is usual for the company to revalue both land and livestock at balance date which is still over two months away and I would expect a positive lift across both of these assets. The company has spent a lot of money this year on extra supplementary feed which has resulted in significantly higher in calf rates. In calf dairy cows have at least twice the value of empty cows which adds further to total livestock value.This would add significantly to the asset backing of the company.
At 31 June, 2010 the company had a NTA value per share of $0.91 NZ .Now there is a much clearer path to profitability mapped out , a permanent CEO in place with an in-depth understanding of the business of dairyfarming and a 20% increase in international dairy product prices. Based on all of that, I certainly won’t be selling my shares at the 70 cents price being offered says Poole.
I’m also aware of existing shareholders prepared to match the Olam offer price and settlement although there will be a monetary limit. Anyone interested should contact Graeme Edwards on 100gre@gmail.com
For further information contact Rob Poole at REPoole@xtra.co.nz Phone 0274355241

[Snoopy]

Snoopy, Thanks. I refused to sell my shares believing the offer was underpriced and the long term value was still there but it was a lonely place to be until I read your posts ,cheers


Joshuatree, your place is about to get less lonely. A small number of shares changed hands today at 71c, above the bid price. So someone is betting that 70c is just too low.

I have been pondering the reason for Olam bid. It could be that they don't really expect it to succeed but are using the bid to boost the price before the rights issue. The less shares they have to issue for cash, the better it will look for Olam.

Getting my head around the new funding package, I think the total $US110m funding requirement includes the already issued $US30m in Uruguayan bonds. NZS has already pledged not to redeem these early, so we can assume these bonds will be an ongoing source of capital for the company for the forseeable future. The required equity needed to extinguish all further debt is therefore $US80m.

Let's say the fair valuation for NZS shares comes in at 90cps. There are currently 244m NZS shares on issue. So Olam goes for a rights issue at the 'discounted' (to fair valuation not market price) of NZ80c, equivalent to US64c (with the exchange rate of $NZ1 to US80c). It would take a 1:2 issue at NZ80c to raise US$78m. That looks preferable to issuing many more shares at a lower price. And it would also give Olam a chance to pick up some shares on the cheap from NZ investors who didn't want to fork up for new shares at 80c, when 'the market' told them the shares before the bid were worth much less. Thus NZ shareholders believing their shares were worth 70c because Olam told them so would happily not take up their rights leaving Olam to do so as underwriter.

The result, non savvy NZ shareholders ripped off. I am hoping that those shareholders remaining in NZS are the smart ones!

SNOOPY

[Snoopy]

Let's say the fair valuation for NZS shares comes in at 90cps. There are currently 244m NZS shares on issue. So Olam goes for a rights issue at the 'discounted' (to fair valuation not market price) of NZ80c, equivalent to US64c (with the exchange rate of $NZ1 to US80c). It would take a 1:2 issue at NZ80c to raise US$78m. That looks preferable to issuing many more shares at a lower price. And it would also give Olam a chance to pick up some shares on the cheap from NZ investors who didn't want to fork up for new shares at 80c, when 'the market' told them the shares before the bid were worth much less. Thus NZ shareholders believing their shares were worth 70c because Olam told them so would happily not take up their rights leaving Olam to do so as underwriter.

The result, non savvy NZ shareholders ripped off. I am hoping that those shareholders remaining in NZS are the smart ones!


Interesting information leaked from the last board meeting by Graeme Wong in his note on the capital raising update.

"The Board had considered on a preliminary basis that the rights issue price should be set close to market with a minimal discount to the prevailing price. That was prior to receiving the takeover notice and no final decision on pricing has been made. No further details have been agreed at this stage and are unlikely to be finalized pending the outcome of the takeover offer."

Olam are doing exactly what I suggested they might by offering up new shares at virtually no discount! Shareholders will have to keep a careful watch on this if their shareholder value is not to be diluted. In the end it is amount of capital Olam are after that will determine how much money shareholders will have to stump up, not the share issue terms. But pricing an issue at almost market price is not small shareholder friendly. This means it will almost certainly be uneconomic for small shareholders to sell their rights on market. Small shareholders, guess who will be waiting in the wings to scoop up those new shares if you don't! Hopefully you have all set aside some money for this upcoming rights issue. No one can say it hasn't been well signaled.

SNOOPY

[Snoopy]

Hopefully you have all set aside some money for this upcoming rights issue. No one can say it hasn't been well signaled.


The takeover offer arrived in the mail last week. A lot of talk about the 20-25% premium being offered on the market price. No mention of the depressed share price being caused by Olam because of the well signalled capital raising!

Also from page 5 of the offer document
"Olam’s loan to NZFSU is a short term solution to NZFSU’s capital requirements. With NZFSU still in its development phase and yet to make a profit, debt is a less suitable source of financing than equity. NZFSU announced in April 2011 that it intended to raise between US$110m and US$115m (NZ$135m – NZ$142m) of new capital to fund the capital expenditure required by the new business plan and to repay the Olam shareholder loan.
Shareholders are likely to be required to contribute an additional amount of capital that is approximately equal to or more than the value of their existing investment in NZFSU to avoid being diluted."

There are 244m NZFSU shares on issue, and no-one paid less than a dollar for each of those when they were issued (some paid $1.50 IIRC). A 1:1 issue at $1 would contribute $NZ244. That is way more than Olam is after. A 1:1 issue at 55c (the previously hinted at price) will contribute $NZ134m. The way the $NZ is appreciating in USD terms, that might be enough.

SNOOPY

[kiwi382]

Hi guys, thanks heaps for your informed threads. I've been reading the guff today and came to the conclusion that i shouldn't sell, for no other reason than they have heaps of assets and it ain't getting any cheaper to buy dairy products regardless of where you are in the world. I'm a lot more informed having read your threads. appreciated.
Cheers Kiwi382

[Well Fed]

Hi guys, thanks heaps for your informed threads. I've been reading the guff today and came to the conclusion that i shouldn't sell, for no other reason than they have heaps of assets and it ain't getting any cheaper to buy dairy products regardless of where you are in the world. I'm a lot more informed having read your threads. appreciated.
Cheers Kiwi382

You can see clearly the light at the end tunnel.
Unfortunatly the hall way down that tunnel is dark and alien.

I believe that Grant Samuels the valuer should be taken to task over some of the variables used in there valuation report.

However, there is plenty of ammo left in Olams court (being the controlling shareholder)
and currently the critical next step is will Olam get 90%.

If so they have stated that they would force the buy out of the remaining shareholders.
If challenged. a new valuation will be done that will be binding.

Grant Samuels should not be that valuer.

The risk is that the value may be lower and with the way the currency is tracking.....

[Snoopy]

I believe that Grant Samuels the valuer should be taken to task over some of the variables used in there valuation report.


I would be interested to know why Grant Samuel is using such a high discount rate (12-12.5%) on the future cashflows in their discounted cashflow analysis. In the previous target company statement similarly high rates were justified on the grounds that NZS was significantly cashflow negative. The argument was made that if Olam did not gain a controlling stake, then there was no certainty that the funding could be found to finish the farm development. However, now that Olam is firmly in the drivers seat, as a supportive shareholder for the ultra well signalled upcoming cash issue, surely some of this funding uncertainty has dissipated? Why is the discount factor still 12% plus?

I understand that farming is inherently uncertain with good and bad years. But when you are looking at a long term projection, the steady state case of those Uruguayan farms, you can be more or less certain that both good and bad years will occur. So annual volatility can produce quite a stable long term expected return. If the farms are well capitalised, which they will be after the upcoming cash issue, I can see a relatively stable outlook which is far at odds with a discount rate of 12-12.5%. However, I am neither a professional farmer nor a professional banker so please correct me if I am wrong in my outlook!

SNOOPY

PS Of course if I am correct and the discount rate should be lower, that in turn means NZS has been significantly undervalued by Grant Samuel!

[Well Fed]

PS Of course if I am correct and the discount rate should be lower, that in turn means NZS has been significantly undervalued by Grant Samuel!

Yes you are correct with the inputs to the Discount rate, I am but a farmer, may be you can tell me what actually drives Grant Samuel.

[Snoopy]

I am going to hang in there for the full 90c per share final offer.


Egg on my face here with the 70c offer now declared 'above fair value'. Or have I? Ask yourself the question, why with dramatically improved cashflows from just a few months ago, and a strong cornerstone shareholder willing to put up cash for future development are the NZS shares worth so much less than the resulting alternative scenarios that the previous Target Company Statement indicated?

IMO the principal reason is that NZS has given those terriers at Grant Samuel a rather different economic farm model to work with. We are now told that a lot more money will have to be spent on supplementary feed on an ongoing basis. It is true that Olam has bumped up the supplementary feed this season with very positive results. But I would say it is far from a done deal that they will continue to have to do this. If you have a bumper grass growing season, why would you overspend on supplementary feed to make up for a food deficit that doesn't exist?

By claiming there are big food bills to come in the future, without actually locking in any of that future spending, Olam have neatly reduced the present value of the farm business model without putting up any cash. That in turn potentially makes buying the NZS shares that they do not own cheaper today. Once Olam own all the shares there will be no-one to hold them to account if the outlined high spending business plan is ditched.

Grant Samuel are not farmers and can only work with the data that Olam feeds them. Minor tweaking of prices may be allowed, but they certainly aren't in a position to question the concept of the farm model they have been given by Olam. Smart business by Olam. But a potential pitchfork in the back for remaining minority NZS shareholders.

SNOOPY

discl: hold NZS, not selling into this latest offer.

[duncan macgregor]

What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk First page of this thread that was my opinion. I wonder how many practical farmers if any were dumb enough to pour money down the drain into this investment. Macdunk

[Snoopy]

From the first page:
If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk

From May2011:
First page of this thread that was my opinion. I wonder how many practical farmers if any were dumb enough to pour money down the drain into this investment. Macdunk

I think if you scan through this thread Macdunk, at least a vocal scattering of practical farmers have invested. Practical farmers don't sit on the computer all day telling you how wonderful their farming invesments have been. They have much better things to do with their time than that. My hope is that almost all of the investors left in NZS:

1/ Are practical farmers.
2/ That know far more about valuing farms than Grant Samuel and Associates and
3/ That they will hang onto their NZS shares.

I personally invested right at the beginning to see this development through. I have already set aside capital for the upcoming cash issue, so the extra money needed is not an issue. Nor should it be to all those remaining as the upcoming cash issue has been very well signalled for months. To me it makes no sense to sell out now when all the on the ground indicators are pointing in the right direction.

As for the 3% capital gain at the end, that may have applied to established NZ farms. But NZS is still a development project which is not yet cashflow positive, yet is on track to be. Current return is negative but that is to be expected at this stage of farm development. When the farms are up and running my pick is that your rule of thumb 3% return on assets will be well exceeded.

SNOOPY

[Joshuatree]

I got rung yest and asked if i was taking up the offer."NO WAY " was my reply. Im not a big shareholder so maybe this indicates they maybe thin on takeup; anyone else rung? Thanks again Snoopy. Cheers

[Marilyn Munroe]

A hedge fund discloses that it is short Olam.

http://www.businessinsider.com/hugh-hendry-april-letter-inflation-2011-6

Boop boop de do

Marilyn

[Snoopy]

A hedge fund discloses that it is short Olam.

http://www.businessinsider.com/hugh-hendry-april-letter-inflation-2011-6

Boop boop de do

Marilyn

Hugh Hendry who is in partnership with an ex-footballer? Looks like his fund has underperformed some hedge fund index over the last few years? Is there any credible reason he should be listened to? Not sure, but the way the article reads to me he is shorting commodities and shorting Olam is just a convenient way to do this?

SNOOPY

[Snoopy]

I got rung yest and asked if i was taking up the offer."NO WAY " was my reply. Im not a big shareholder so maybe this indicates they maybe thin on takeup; anyone else rung? Thanks again Snoopy. Cheers

Was rung on Thursday night by some NZ crowd representing Olam.

"Have you got the takeover offer documents?"
"Are you going to take up the offer?"

I politely declined. Meanwhile I see that Olam have crept up to 81% of shares. Let's just hope they don't make 90%.

SNOOPY

[Anonymous]

Hi Guys

Firstly I just wanted to say thanks to everyone for how much I have learnt and enjoyed reading ST since end of last year. It has opened my eyes to many things.

I have a question regarding this Olam offer. I don't want to accept it and am prepared to participate in any cap raising. However I have serious concerns about holding a company in which say only 15% is freely traded. This must seriously reduce liquidity and drastically limit exit opportunities should one need to get out. Does anyone have any thoughts of any additional risk of being a minority shareholder in this situation?

Also, whatever the outcome of this current takeover offer, surely it must be Olam's intention to take full control in the future and delist? My (extremely limited) understanding of the Takeovers code is that Olam can't buy on market for 12 months after the offer. They can then buy up to 5% in any 12 months? If this offer takes them over 85% they can then sit tight for 12 months and suppress the shareprice, and then buy another 5% on market which would take them over the 90% ownership and compulsorily acquire the rest? Aren't we just delaying the inevitable for limited prospects and high risk?

Hopefully someone can appease my concerns?

Thanks in advance and thanks again to all the regular contributors on all the threads. There is a wealth of varying views of knowledge on here.

Cheers
Anon

[Snoopy]

I have a question regarding this Olam offer. I don't want to accept it and am prepared to participate in any cap raising. However I have serious concerns about holding a company in which say only 15% is freely traded. This must seriously reduce liquidity and drastically limit exit opportunities should one need to get out. Does anyone have any thoughts of any additional risk of being a minority shareholder in this situation?


I would say if you may 'need to get out' then in all honesty NZS is probably not the share for you. However this lack of liquidity works two ways. If someone really wants to get in they will have no option but to bid up the share price over and above the price they would normally pay if the share was more liquid. I have a couple of shares (maybe three) that I would find very difficult to quit at short notice. However I have other shares which I could quit at short notice if necessary. I personally have a long term time horizon and lack of liquidity isn't a problem. But I do have a loose 'dollar cap' that limits the amount of money that I am prepared to invest in lower liquidity shares. I should add that if I take up my NZS rights in the upcoming issue I will be over that loose cap. But I am comfortable with that position in this one instance.



Also, whatever the outcome of this current takeover offer, surely it must be Olam's intention to take full control in the future and delist? My (extremely limited) understanding of the Takeovers code is that Olam can't buy on market for 12 months after the offer. They can then buy up to 5% in any 12 months? If this offer takes them over 85% they can then sit tight for 12 months and suppress the shareprice, and then buy another 5% on market which would take them over the 90% ownership and compulsorily acquire the rest?


For someone with a self professed limited knowledge of the takeover code Anonymous, I think you are underestimating your ability to assimilate relevant information! Your post covers all the salient points and your concerns are real. If Olam gets to 90% it is game over for minority shareholders. If Olam gets to 85% they could creep to over 90% after 12 months. However in order to do so, they would have to find willing sellers. IMO shareholders who have hung on through the upcoming rights issue are unlikely to sell out cheaply a year or so later.



Aren't we just delaying the inevitable for limited prospects and high risk?


The high risk IMO is selling out now just when everything seems to be coming together leaving all the upside to Olam! Because NZS is effectively a development project all cashflow benefits of the future are heavily discounted. If we take the Grant Samuel report at face value $100 from a cow in one years time is only being valued at $100/1.12= $89.29. $100 from a cow in two years time (when the farm is scheduled to break even) is only being valued at $100/1.12^2= $79.72.

IOW if the business plan is executed according to schedule we can expect to gain about 20% on our capital over and above the 69c Grant Samuel valuation without doing anything more after funding the cash issue. And after two years, well that is when this thing should really take off. I know with all farming there is risk. But in IMO the risk of NZS being unable to execute this new business plan eventually is very low indeed, even if risks of speed bumps along the way are high.

SNOOPY

[Snoopy]

The high risk IMO is selling out now just when everything seems to be coming together leaving all the upside to Olam! Because NZS is effectively a development project all cashflow benefits of the future are heavily discounted. If we take the Grant Samuel report at face value $100 from a cow in one years time is only being valued at $100/1.12= $89.29. $100 from a cow in two years time (when the farm is scheduled to break even) is only being valued at $100/1.12^2= $79.72.


In case it wasn't clear my new 'worst case scenario' is Olam gaining 85% and being able to acquire the remaining shares by compulsory acquisition in two years time. In that scenario all things being equal we remaining minority shareholders might be forced out at 69c + 10% = 76c. Even if the Uruguayan climate goes wobbly over the next two years I don't think it will matter too much. Because after the cash issue NZS will be very well capitalised to withstand such storms!

SNOOPY

[Anonymous]

Thanks Snoopy for your answer.

Just to clarify, when I said 'may need to get out', I wasn't meaning for personal reasons (touch wood). I was thinking more about adverse events that might affect the company in the short term, such as a severe drought or drop in dairy prices etc etc.

I wouldn't worry about any of the above with the long term investment horizon that I brought into the stock with. But the fear I have is that we don't have a long term horizon as it is potentially only a matter of time before Olam gets full control anyway.

This is clouding my view of the stock and making me view it as a short term investment which doesn't work for NZS...

If I knew Olam were going to sit tight with their shareholding %age and we could all let the stock play out over the years ahead I would be happy with that. But being listed on the NZX surely can't bring any benefits as far as Olam is concerned meaning they will want us out asap?

Like you I think the long term prospects are great and as you say, I guess shareholders who hang on now are unlikely to sell out cheaply in the short term (barring that drought or drop in milk price...).

Thanks again.
Anon

[Anonymous]

In case it wasn't clear my new 'worst case scenario' is Olam gaining 85% and being able to acquire the remaining shares by compulsory acquisition in two years time. In that scenario all things being equal we remaining minority shareholders might be forced out at 69c + 10% = 76c. Even if the Uruguayan climate goes wobbly over the next two years I don't think it will matter too much. Because after the cash issue NZS will be very well capitalised to withstand such storms!

SNOOPY

Just saw your second reply and I guess that answers my short term fears. But why would the compulsory acquisition be in 2 years time. Can't they do it in 12 months?

[Snoopy]

Just saw your second reply and I guess that answers my short term fears. But why would the compulsory acquisition be in 2 years time. Can't they do it in 12 months?

I think that having just made a takeover offer and gained another 5% of the company then Olam are barred from increasing their holding for a further 12 months unless they make another full takeover offer.

If Olam do not gain an extra 5% from this takeover offer then they could creep up to that additional 5% target within 12 months but they cannot go beyond that additional 5% under the creep provisions in the takeover code. After 12 months they could creep by a further 5%. The maximum they can creep in two years is therefore 10%, all assuming there are enough willing sellers to enable them to get there!

I suppose in theory if Olam gain 5% in this offer they could wait 365 days, then on day 366 buy on market an additional 5% all in one go. But again they would have to find sufficient willing sellers. I don't think that is likely.

SNOOPY

[Snoopy]

I was thinking more about adverse events that might affect the company in the short term, such as a severe drought or drop in dairy prices etc etc.

I wouldn't worry about any of the above with the long term investment horizon that I brought into the stock with. But the fear I have is that we don't have a long term horizon as it is potentially only a matter of time before Olam gets full control anyway.

Like you I think the long term prospects are great and as you say, I guess shareholders who hang on now are unlikely to sell out cheaply in the short term (barring that drought or drop in milk price...).


I think the reason many supposed long term shareholders sold into the original Olam offer was that milk prices were under pressure in New Zealand. Consequently land values were too. Many dairy farmers who had invested and were overleveraged may have been told to sell out to get some cash by their NZ bankers. It is totally different now with milk prices on the up again. I am picking that all the overleveraged weak NZ sellers are now out of NZS.

Those of us 'still in' are not banking on dividends from NZS this year. With the company recapitalised I would be surprised if another drought in Uruguay or a drop in milk price would make much difference to the NZs share price. If you read the NZS business plan they are expecting the milk price to drop anyway. If the actual drop in milk price is less than the expected drop you can expect the value of your NZS shares to go up, even as the milk price falls!

SNOOPY

[Snoopy]

Just saw your second reply and I guess that answers my short term fears. But why would the compulsory acquisition be in 2 years time. Can't they do it in 12 months?

The extended offer date closed. Olam now has 84.224% of shares. So Olam has extended the offer date again by two weeks. I predict that having been foiled from gaining 90%, Olam will now try to bully enough shareholders into accepting to go past 85%. Olam's claim is that they are just allowing time for the mail to get through, but I don't buy that. A one week extension would have achieved that goal.

The two week extension will be enough time for their NZ engaged PR firm to try 'fear tactics' on remaining shareholders. They will claim that the further lack of liquidity will result in your shares being more difficult to sell. But they will carefully neglect to mention that the remaining shares relative scarcity will also increase their value for those wanting to buy in. Remaining shareholders steel yourselves. You are about to be heavied.

SNOOPY

[Well Fed]

http://www.stuff.co.nz/business/farming/5112280/Group-says-it-can-block-Olam-bid

Go for it guys!

The following is the content of an email to the Group mentioned above

Response to Olam’s extension of offer

For those of you who are not already aware, Olam has announced that it is extending its takeover offer until the 29th of June. We are surprised they were able to do this so late in the piece but in any event the offer cannot be extended past 4 August .

It is our view that it became obvious to Olam that they were not going to achieve their 90% target. Clearly this offer is not, as they purported, an opportunity for minorities to exit after the new business plan was presented, but a determined effort to gain 100% of a unique milk supply. Asian and Middle Eastern interests are currently attempting to secure such supply chains throughout South America and Africa.

Olam has opted to buy themselves time by extending their offer contrary to previous indications but, as we know, they have already reneged on previous assurances such as supporting an independent chair and maintaining an NZX listing.

Olam will use this extended period to put pressure on shareholders to cave in and sell. We consider their reiteration of the reasons to sell namely the lack of liquidity and an unnecessarily large share issue to be intimidatory. Most minority shareholders have clearly indicated that they consider 70 cents is too low and why would that view change in the next two weeks?

Our position remains unchanged.

We reject the 70 cents offer by Olam because we believe it doesn’t reflect the full value of NZFSU. We have clearly spelled out the reasons for this before but will do so again for the sake of clarity:

• The offer is significantly less than the net asset value of the company.
• We believe the discount rate used in the valuation model is too high ( the valuer notes in his report that “ the valuation is particularly sensitive to key assumptions”).
• Grant Samuel comments also, in relation to the NZ/US exchange rate, that “the timing of the Olam offer could be seen as opportunistic”.
• The Independent Directors have suggested “There are reasonable grounds to believe the upper end of the value range is conservative”.
• The recent sale of a farm at 26% above the valuation of May 2011.
• The new business plan is conservative around land use, e.g. 2014 steady state planned milking area of 16,037 hectares( or 46%) out of a total of 34,452 hectares under management.
• The D.C.F valuation method used by Grant Samuel to appraise the value of NZFSU takes no account of the unique opportunity this investment presents to Olam. Olam has acquired a dominant shareholding in NZFSU which has freehold title to 26,972 hectares of productive farmland in a Latin American country with a stable Government and orthodox economic policies.
Internationally there is evidence of increasing unease in food producing countries towards acquisition of farmland by foreign corporates. It follows that this will lessen the likelihood of these investments being available in future and adds value to the current position.

We believe the ball is in Olam's court. Minority shareholders have spoken.

[Snoopy]

The extended offer date closed. Olam now has 84.224% of shares. So Olam has extended the offer date again by two weeks. I predict that having been foiled from gaining 90%, Olam will now try to bully enough shareholders into accepting to go past 85%. Olam's claim is that they are just allowing time for the mail to get through, but I don't buy that. A one week extension would have achieved that goal.


The takeover offer has closed and Olam has 85.93% of shares. Not a great result as they are now able to creep by 5% over the next 12 months and compulsorily acquire the remaining independently held shares if they get there. Still they will have to persuade 1/3 of the remaining shareholders to sell their shares if they are to achieve this.

SNOOPY

[Snoopy]

Interesting announcement from NZS independent directors on 28th June:

“The independent directors note that primarily as a result of a higher assumed average milk price of USD 37 cents per litre, the current draft budget forecasts earnings before interest and tax (EBIT) for the 2011/2012 year at USD 8.9 million against the Company's existing business plan forecast of USD 3.3 million, and net profit after tax of USD 2.9 million against the business plan forecast of a loss of USD 1.9 million.”

It is illuminating to compare that statement with some of the figures previously mentioned in the Target Company Statement produced in response to Olam’s 6th May 2011 takeover offer.

On page 19 of the Target Company Statement (TCS), we learned that the average milk price per litre achieved for the half year to 31st December 2010 (HY2011) was US32.9c per litre. On page 17 of the TCS the full year price forecast average price for FY2011 was listed as US37.5c per litre. Even given a higher volume of milk in the second half year, this implies a second half-year per litre price considerably higher than US37.5c. As at 19th May 2011 NZS are receiving US45c per litre of milk (p29 TCS). But the forecast increase in average price (over past estimates) to US37c over FY2012 still implies a significant (18%) decrease compared to the milk price farmers were getting at the gate in Uruguay in May 2011. I think a further profit upgrade for FY2012 cannot be ruled out.

The first business plan put in place by Olam, as reassessed for FY2011, forecast ‘break even’ at Earnings before Interest and Tax (EBIT) level for the financial year to 30 June 2012 (FY2012) (see p16 TCS). Curiously p19 of the same document shows a forecast EBIT of $US3.27m for the same 2012 financial year. I am not clear whether the “break even” EBIT result or the forecast EBIT of $US3.3m was correct. What is clear is that with the FY2012 EBIT forecast now improving to $US 8.9m in just over a month, the NZS farm economics in Uruguay are improving rapidly.

Nevertheless I assume that the forecast volume of milk for FY2012 has not changed.

Over FY2011, NZS will produce about 105 million litres of milk (p17, TCS). At 37.5c/l, this represents a positive cashflow of $39.4m.

It is a little simplistic to claim that during FY2011 the average cow produced 105Megalitres(Ml)/25,000= 4,200l of milk. That is because 25,000 milking cows was the number around at the end of the year, up from 14,500 at the end of the previous year. We should also consider that the feeding regime changed during FY2011 as a result of the revised Olam farm management plan. This increased milk output in the latter half of FY2011 over and above the New Zealand management’s plan is a direct consequence of the increase in supplementary concentrate feeding. Nevertheless 4,200l/cow is comparable to the 4,334l/cow achieved over all of Uruguay in 2009 (p18, TCS). This despite the dry spring and early summer of HY2011 (p58, TCS) which reduced pasture growth.

Page 20 TCS, forecasts productivity for FY2012 will be 5,021l/cow. With a dairy herd of 37,673 cows (p20, TCS) that equates to 37,673 cow x 5,021l/cow= 189Ml of milk to be produced.

At US37c/l, (the projected milk price of the 28th June 2011 profit upgrade milk price), this equates to a positive cashflow of $US69.9m. This compares to $US64.3m under the previously forecast milk price of US34c/l (p20, TCS). Before we all get too excited, I should point out that this price rise affects only one year (FY2012) and that the long term price forecast of US32c/l remains unchanged. Nevertheless the longer that milk price stays up, the more credible that US32c/l long term price looks.

NZS currently pays no income tax. So any increase in cashflow will flow directly to the bottom line, net of higher interest charges derived from higher capital spending ($US60m of new borrowing for 3 months before the cash issue is completed). This 28th June increased profitability forecast will, in my assessment, increase the value of NZS shares by:

[$US69.9m-$US64.3m-(3/12)[($US60m(0.09)]/ 244.2m= US1.74cps or NZ2.2cps (based on $NZ1=$US0.8).

As a check on my assumptions we can compare my calculation with the direct effect of the just forecast change in net profit:

($US2.9--$1.9)/244.2m= US2.0cps or NZ2.5cps (based on $NZ1=$US0.8)

This is close enough for me to believe that my assumptions and logic are on track. I have probably overestimated the net debt due to ignoring cash above book value from farmland sales.

If you Accept the Grant Samuel valuation, but

1/ believe the discount factor used was too high by 0.5% due to falling ten year bond rates and more certainty in the development funding (worth NZ 7c/share), and
2/ factor in the improved profit outlook. (worth NZ 2.5cps)

fair value for NZS shares is now 69.5c to 78.5c. That is quite a rise in value from the 60-69c fair value price range issued by Grant Samuel barely a month ago. Confirmation, unfortunately for those shareholders who sold into Olam’s 70c offer that closed on 29th June 2011, that they have sold their shares right at the bottom end of the fair value price range.

SNOOPY

[Snoopy]

One more anomaly to bring to the attention of NZS shareholders.

On page 30 of the Target Company Statement, Grant Samuel uses an indicative figure of US42c per litre for FY2012 and US35c long term as part of their valuation. This higher figure than even the new revised upwards figure that management are assuming results translates to an implied EBIT multiple of 18.6 for year 2011/2012 otherwise known as FY2012 (p31, TCS).

The latest management projection has a net profit of $US2.9m for FY2012. There should be no tax payable in FY2012, due to previous year losses and associated tax credits received. Interest costs are projected at $US5.976m for FY2012 (p22 TCS). So this is how the revised FY2012 EBIT of:

$US2.9+$US5.976= $US8.876m

is calculated. Using the Grant Samuel EBIT multiple of 17.3 to 18.6 (p31, TCS) on this figure gives a company value of $US154-165m. This equates to a per share value of :

$US(154m-165m)/244.2m= US62.9-67.6cps, or NZ79-85cps (based on $NZ1=$US0.8).

This is a considerably higher value than that determined from the discounted cashflow valuation and perhaps gives us a better guide as to how the company will be valued as it becomes permanently profitable.

As far as I can figure if GS assumes a 10% higher milk price than management, both in the short and long term, then their valuation will be 10% higher than management’s. If you accept management figures then the fair value of NZS shares on an EBIT multiple basis is 71.1c to 76.5c. I note that this EBIT multiple valuation is still above the Olam offer price, even as the cashflow valuation according to Grant Samuel, remains below 70c. I think this is evidence that the discount factor of 12%, used in the cashflow valuation by Grant Samuel in the TCS, has indeed proved to be too high.

SNOOPY

[Anonymous]

The takeover offer has closed and Olam has 85.93% of shares. Not a great result as they are now able to creep by 5% over the next 12 months and compulsorily acquire the remaining independently held shares if they get there. Still they will have to persuade 1/3 of the remaining shareholders to sell their shares if they are to achieve this.

SNOOPY

Snoopy, firstly thanks for you indepth analysis on both this and all the other shares you frequently comment on. It is always appreciated.

Yes I agree it is very unfortunate that Olam have gotten over the 85% mark. Regarding the 5% creep, my understanding is that there is a 12 month stand-down period from the close of the offer before they can buy on market and try and gain their 5%. It says in the Letter to Shareholders at the start of the TCS:


Olam will be able to acquire a further 5% of NZS Shares 12 months after the end of the Olam Offer period.

Is my reading of this correct?

Also, what I don't know, if they do creep over 90% how is the price set by which they compulsorily acquire the remaining 10%?

Lastly, is it possible to find a list of top 10 shareholders now? It would be interesting to know who the remaining larger (relatively speaking) players are.

Cheers

[Snoopy]

It says in the Letter to Shareholders at the start of the TCS:
"Olam will be able to acquire a further 5% of NZS Shares 12 months after the end of the Olam Offer period."

Is my reading of this correct?


Anonymous don’t automatically believe what independent director Graeme Wong has to say, or what I have to say. Go to the website

http://www.takeovers.govt.nz

and download a copy of the takeovers code for yourself, from the legislation section. Now look at section Section 7, explaining how a substantial shareholder can legally increase their holding

-----
7 Exceptions to fundamental rule
A person may become the holder or controller of an increased percentage of the voting rights in a code company —

1(e)if —
(i) the person holds or controls more than 50%,but less than 90%,of the voting rights in the code company; and
(ii) the resulting percentage of the total voting rights in the code company that is held or controlled by the person does not exceed by more than 5 the lowest percentage of the total voting rights in the code company that was held or controlled by the person in the 12-month period ending on and inclusive of, the date of the increase:
----

Please feel free to use your own interpretation on what that means regarding the Olam takeover offer.

My interpretation is this:
A/ Pick any date of the past year. Note the percentage of NZS shares held by Olam on that date.
B/ Add 5% of all the shares on issue onto the number of shares held by Olam on any possible date that could be selected in A/. If the actual number of shares held by Olam ‘today’ is greater than the figure you have just calculated then Olam have broken the law.

Because Olam have increased their holding by more than 5% in the recent takeover offer, there is now no legal way for Olam to increase their NZS holding for another 12 months by ‘creep’. That is how I (now) see things.

SNOOPY

[Snoopy]

If they do creep over 90% how is the price set by which they compulsorily acquire the remaining 10%?


An independent valuer is appointed by Olam to see if the price is fair at the time of compulsory acquiisition. If a minimum number of shareholders disagree with this valuation (I think 5% of all shareholders) then those shareholders can commission their own independent valuation which IIRC is binding on Olam for those shareholders (even if it is less than Olam offered).

SNOOPY

[Snoopy]

Lastly, is it possible to find a list of top 10 shareholders now? It would be interesting to know who the remaining larger (relatively speaking) players are.


I think you could contact the share registry and ask. However with the FY2011 closing off on 30-06-2011 and the Annual Report due soon all of that information , as at 30th June, should be in there, if that is up to date enough for you?

SNOOPY

[moimoi]

if the "holdouts" (and well done to them BTW) stay strong then there won't be any shares available on the sell side to creep with...

[Snoopy]

if the "holdouts" (and well done to them BTW) stay strong then there won't be any shares available on the sell side to creep with...

Interesting that a small parcel of NZS shares traded at 75c today, 5c above Olam's offer.

I see that Olam wants to underwrite the upcoming cash issue. Olam will need small shareholders to approve this. Personally I would like to see an over-subscription facility to allow the small shareholders to participate in any capital raising shortfall. Otherwise the underwriting facility is just another way for Olam to increase their holding towards that magical 90% by stealth.

The company is performing better than expected so I am not sure if a 100% response to the capital raising is critical. If the small shareholders don't get a chance to to oversubscribe, I think I will be voting against Olam as underwriters for this one.

SNOOPY

[Snoopy]

If you believe Grant Samuel, NZS is worth between 64.9c and 79.2c. Take away a 20% premium for control you get between 52c to 63c. Of course we are all assuming the coming cash issue will be at a discount to market value. But if Olam wants to mop up some more shares they may not issue the cash issue at a discount. That way they would still be playing 'fair' and be in a position to pick up some more shares when remaining shareholders balk at taking up their expensive (compared to market) but still cheap (compared to valuation) shares.


I wrote the above just over a year ago. Now think about what I said and compare this to Olam's announcement to the market yesterday

"The notice of meeting will specify the number of new shares that eligible NZS shareholders will be entitled to acquire for every existing share held on the Record Date, which will also be advised in the notice of meeting. The new shares will be offered at a price of NZD 70 cents per share. The new shares will rank equally in all respects with existing NZS shares as at the allotment date."

Olam are being extra cheeky having a cash issue of shares at above the market price (currently 65-66c). In all my years in the sharemarket, I have never heard of this being done before. But I guess if your aim is to acquire control of a company by whatever means are legally open to you, you will indeed try anything. I am not impressed. Minority shareholders keep your wits about you!

SNOOPY

[POSSUM THE CAT]

Snoopy not the only One BTT in Australia did it very recently

[Balance]

I wrote the above just over a year ago. Now think about what I said and compare this to Olam's announcement to the market yesterday

"The notice of meeting will specify the number of new shares that eligible NZS shareholders will be entitled to acquire for every existing share held on the Record Date, which will also be advised in the notice of meeting. The new shares will be offered at a price of NZD 70 cents per share. The new shares will rank equally in all respects with existing NZS shares as at the allotment date."

Olam are being extra cheeky having a cash issue of shares at above the market price (currently 65-66c). In all my years in the sharemarket, I have never heard of this being done before. But I guess if your aim is to acquire control of a company by whatever means are legally open to you, you will indeed try anything. I am not impressed. Minority shareholders keep your wits about you!

SNOOPY

I do not have any problem whatsoever with the Olam initiated rights issue at above market price.

1. Olam gave shareholders every opportunity (twice) to sell shares to it at 70 cents. It makes a nonsense for those who did not sell to Olam to argue that 70 cents was insufficient - and then, to have some of them selling into the market at under 70 cents. Where is the sense?

2. Olam obviously sees the value of NZS at above 70 cents - otherwise why would they make a takeover offer at 70 cents? So nothing wrong with them making a rights issue at 70 cents.

3. NZS is in financial difficulties and would be gone burger but for Olam. Other shareholders are wanting to leverage off Olam's financial strength.

4. The rights issue is to all shareholders.

In this instance, it shows the fallacy of the NZ market - short term view versus long term view.

That's why overseas investors LOVE NZ investors.

BTW - I think Metlife made a rights issue at above market price after several major shareholders (Fisher Funds, RECT and ACC from memory) rejected a takeover offer and the company needed funds.

[bung5]

very good post balance. agree with you 100% on this.

[duncan macgregor]

What I am saying is if i buy a commercial building to rent out in NZ i can expect a return on capital between 6% to 8% in rent plus a capital gain when i sell. If I buy a farm in any country in this world take your pick [excuse the pun]I can only expect a 3pc return on capital if i run it myself plus a capital gain when i sell.
To place managers in and run it like a company is a fools investment.
Thats only my opinion having been around farms in quite a few different countries. The investors coming into this will be city people i cant see any practical farmers investing in this. macdunk Five years on from that post with no profit on the horizon, and a share price drop from 140c to 65c why the hell would you not have learned the lesson by now. The only people making money on this are the high paid directors bleeding the vulnerable. Macdunk

[bung5]

Five years on from that post with no profit on the horizon, and a share price drop from 140c to 65c why the hell would you not have learned the lesson by now. The only people making money on this are the high paid directors bleeding the vulnerable. Macdunk

Yes but what about the people who bought 40, 50c and then sold for 70c. not a bad return. You were saying all of this when the share price was around this level.

[duncan macgregor]

[QUOTE=bung5;357625]Yes but what about the people who bought 40, 50c and then sold for 70c. not a bad return. You were saying all of this when the share price was around this level.[/QUOTE I said that at all the SP levels. The people backing this all the way down are presumably the people who are clueless about the basic profit margin fundamentals of farming. TA investors can always make money following the herd regardless of how silly it becomes. There are much more reliable TA trades to be made than buying into the doggy market. Macdunk

[Snoopy]

Five years on from that post with no profit on the horizon, and a share price drop from 140c to 65c why the hell would you not have learned the lesson by now. The only people making money on this are the high paid directors bleeding the vulnerable. Macdunk

Dunc you haven't been keeping up. A maiden profit is forecast for this year.

SNOOPY

[Snoopy]

3. NZS is in financial difficulties and would be gone burger but for Olam.


Not really true. NZS had plenty of farmland they could sell to get cash. But the previous (NZ based) directors could not stomach downsizing their farmland holdings significantly.

SNOOPY

[Snoopy]

I do not have any problem whatsoever with the Olam initiated rights issue at above market price.

1. Olam gave shareholders every opportunity (twice) to sell shares to it at 70 cents. It makes a nonsense for those who did not sell to Olam to argue that 70 cents was insufficient - and then, to have some of them selling into the market at under 70 cents. Where is the sense?

2. Olam obviously sees the value of NZS at above 70 cents - otherwise why would they make a takeover offer at 70 cents? So nothing wrong with them making a rights issue at 70 cents.


Balance, the 70c valuation is based on 244m shares being on issue. Once more shares are issued the underlying value of those shares will generally change.

From a shareholder perspective a 1:1 issue at 70c is no different to a 7:1 issue at 10c, or a 2:1 issue at 35c. The amount of capital raised is the same in each case. Of course the final share price will be different in the three situations I have outlined, because the number of shares issued varies in each instance. However as far as the company is concerned operationally, it is only the amount of capital raised that is important.

With tradeable options (not the case here I know) shares are normally priced below market to allow shareholders who do not want to take part in the cash issue (yes I know it has been well signalled but sometimes circumstances change) some consideration. There is no real reason not to do this, unless the majority shareholder has another agenda, which IMO they do here.

Having a non-renouncable rights issue when effectively doubling the size of the company is something I have never seen before on the NZX.

SNOOPY

[duncan macgregor]

Dunc you haven't been keeping up. A maiden profit is forecast for this year.

SNOOPYSnoopy five years on still waiting on a maiden profit with a SP at 50% of start up price. This is a business that only shows a 4% return on capital invested less corporate greed. The fundamentals are against you even getting your money back in the next five years. Do yourself a favour ask a dairy farmer for a bit of inside know how before beleaving the bulldust. macdunk

[Balance]

Snoopy five years on still waiting on a maiden profit with a SP at 50% of start up price. This is a business that only shows a 4% return on capital invested less corporate greed. The fundamentals are against you even getting your money back in the next five years. Do yourself a favour ask a dairy farmer for a bit of inside know how before beleaving the bulldust. macdunk

Olam will take this thing over - that's for sure.

Problem meantime is keeping up with the rights issue etc.

Better to switch over to PGW - Agria must be due to make its next takeover move?

[Snoopy]

This is a business that only shows a 4% return on capital invested less corporate greed.

If you believe Grant Samuel then if things go according to plan we NZS shareholders will receive a 12% return on our NZS shares in perpetuity. Therefore we should sell our shares to Olam. I don't follow the Grant Samual logic and nor do the other independent NZS shareholders that are left. So why has the thoroughly discredited Samueloid being asked to bark out their view on the company again? Surely they don't expect the remaining minority shareholders to take their views seriously?

SNOOPY

[duncan macgregor]

SNOOPY, You didnt take me seriously at the beginning when I told you any profit margine would be between three, and four pc on capital raised, less corporate greed. Ask the russians about collective farms run by managers, or show me any where in this world that agriculture shows a higher profit, other than a taxable capital gain selling out. The people starting businesses such as this rely on the ignorance of the public to feather their own nests. Farming is a hands on family life style business as you one day will surely find out. Macdunk

[Snoopy]

Problem meantime is keeping up with the rights issue etc.


Minority shareholders have scuttled the rights issue for now. Despite Olam claiming a rights issue is critical, a cursory read of the annual report reveals perhaps the case is not quite so clear cut as Olam suggests.

Milk sales is $US terms ($US is this company's normal reporting currency) are up from $19.230m to $40.423m, an increase of $21.193m. Of course this increase in sales did not come out of thin air. There was a big increase in concentrates used as supplementary feed ($3.374m to $18.552m, an increase of $15.178m) and a significant increase in the amount spent on animal health breeding and calf rearing ($2.931m to $4.209m, an increase of $1.278m).

Put simply it appears $21.193m of milk ouput was gained by increasing input costs by a total of $16.456m. That looks like a good trade off to me and a good indication that Olam's modification of the New Zealand way of doing things is showing results. The actual productivity gain is probably greater than these annual figures show because the improved condition of the herd should positively affect future years revenues as well as the financial year just gone.

SNOOPY

[Snoopy]

Put simply it appears $21.193m of milk ouput was gained by increasing input costs by a total of $16.456m. The actual productivity gain is probably greater than these annual figures show because the improved condition of the herd should positively affect future years revenues as well as the financial year just gone.


The sticking point in milking this increase in productivity is, how is the money to fund these increased input costs obtained?

If enough new equity is introduced into the business then all of this net gain of the new management regime flows straight to the bottom line for shareholders. However, if the new capital to develop the business is borrowed then there is an interest bill to pay. The sum of short and long term loans and borrowings has increased from $57.154m (FY2010) to $110.19m (FY2011). That is an increase of $53.036m. If that capital if borrowed from Olam at 8.9% (the current interest rate for borrowings from Olam, see Note 27) then the accompanying annual interest bill is $4.72m. Given the net cashflow gain from this investment over the year was $4.737m, we can see that almost all of this productivity gain is chewed up by interest payments. Olam are sitting pretty lapping up the loan bond interest while small shareholders see next to nothing of this productivity increase.

SNOOPY

[Snoopy]

According to the annual report, note 8.

"Milk sales to Conaprole require a compulsory investment in share capital of Conaprole. As there is no active market for this share capital, and as the fair value cannot be measured using other valuation techniques, the group has impaired the value of this investment to $US0."

Conaprole, for those who came in late, is the Uruguayan equivalent of Fonterra. The analogy holds well as Conaprole is Uruguay's largest exporter. The requirement for milk producers to buy shares in their milk processor also mirrors the New Zealand situation with farmers having to buy shares in Fonterra. Just like in Uruguay, there is no active market in Fonterra shares. Yet I wonder how many NZ farmers consider their shares in Fonterra worthless?

I know that NZS are Conaprole's largest supplier, although given Conaprole has existed since 1936 I doubt if NZS are Conaprole's largest shareholder. I don't know precisely how many Conaprole shares NZS own. But as NZS's milk production goes up they will own progressively more and more. The non recognition of the Conaprole shares' value does not inspire me to consider Olam as switched on guardians of the money I have invested in NZS!

SNOOPY

[Snoopy]

Given the net cashflow gain from this investment over the year was $4.737m, we can see that almost all of this productivity gain is chewed up by interest payments. Olam are sitting pretty lapping up the loan bond interest while small shareholders see next to nothing of this productivity increase.


We expected the loss of New Zealand tax credits when Olam moved from a position of minority to majority shareholder. However it does appear as though Uruguayan tax credits were preserved to a greater or lesser extent. Note 23 of AR2011 makes this comment on the $US23m in tax losses notched up by company subsidiaries in Uruguay.

"These assets have not been recognised on the basis they do not satisfy the deferred tax recognition criteria, as it is not considered probable that there will be sufficient future taxable profit against which the losses can be utilised."

Now where did that profit promised by original promoter Craig Norgate go? As the quoted text above states, almost all of it is going to Olam in interest payments. But my question is, what happens if a significant capital raising is completed? Those interest payments will be much reduced which unlocks a whole lot more profit potential. My guess is that a good part of those Uruguayan tax losses will become live again. $US23m equates to just under 10USc per share or around 12 NZc per share. With the share price sitting just under 70c, an extra 12cps would surely be very significant for shareholders (?)

SNOOPY