Forum Archive Index - November 2001

["Viewpoint ." <viewpoint_@hotmail.com>]

Generally shares are valued on the basis of the future expecations of the 
company involved - buying a share is buying a share of the future earnings 
stream of that company.

Frucor is an interesting case. Until the Danone offer the market was only 
prepared to value its future earnings stream at $1.70 to $1.80 a share. Most 
were living in high expectations of success in Britain but were not prepared 
to, at that time, to pay for that eventuating.

Along comes Danone and an offer at $2.35. Those who were only prepared to 
pay $1.70 to $1.80 per share now think that they should be entitled to 
$3.00, $4.00 or maybe $5.00 or higher.

The question one needs to honestly ask is why would Danone want to pay any 
more than $2.35? A 12-13 times EBIT the $2.35 offer is about the going rate 
for a beverages company at the moment (even though Lion have paid more for 
their acquisitions and look what has happened to their share price as a 
consequence). Would the shareholders of Danone be happy if they paid over 
the top for Frucor? I don't think so.

The higher valuations most put Frucor are in expectations of success in 
Britain. I doubt Danone would take a risk in paying for an earnings stream 
that may never eventuate.

Also from Danone's perspective is that they would be paying 8 times book 
value for Frucor with the resultant higher goodwill expense in the future.

I see the outcome as Danone taking a substantial stake in Frucor and in the 
meantime being content with that. That in itself is probably a good outcome 
for Frucor in that it will have access to the huge resources and capital 
that Danone have so that can increase distribution further.


We will all see the outcome as we get closer to Dec 7th.


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