GPG sees money in Australian water

Friday 11th September 2009

Guinness Peat Group is seeking control of Australian agribusiness Tandou to force the target to sell unprofitable assets and maximize returns from its water licensing rights on the Murray Darling river system.

GPG director Gary Weiss told Tandou chairman Dick Warburton in a letter that “continued retention and maintenance of Tandou’s loss-making businesses – in the face of the significant uncertainty regarding water availability – has eroded, and will continue to erode, shareholder value.” Weiss called for an urgent shake-up of the company’s strategy. GPG offered 30 Australian cents a share, a 7% premium, to lift its stake in Tandou to 60% from 19.9%. The shares were last at 28 cents.

If the offer succeeds, GPG expects to “sell, restructure or close any horticultural and other peripheral activities not producing an economic return to shareholders and to explore all avenues to maximise the value of Tandou’s remaining water assets,” Weiss said.

This week the Murray-Darling Association, which represents stakeholders along Eastern Australia’s biggest river system, agreed to ask the Federal government to fast-track water-saving projects in the Murray-Darling Basin. At the association’s annual meeting, there was intense debate over whether to impose tighter restrictions on the issuance of water licences.

The Murray-Darling river system is the main source of water in eastern Australia, and heavy demand for irrigation across the wheat belt has sapped the waters’ flow.

“Given the situation with water rights in Australia, maybe GPG sees an opportunity to get on to something that’s quite valuable for them,” said Alan Moore, who helps manage around $300 million for Milford Asset Management. Tandou “had a capital raising in 2007 and said better times were ahead, but they never came – it looks like GPG’s got a bit frustrated with the thing.”

Tandou chief executive Guy Kingwill has recommended shareholders wait until they’ve received all takeover documentation and a recommendation from the board.

Tandou’s shares surged some 75% on the ASX this year after it sold some of its water rights in November, while GPG stock climbed 1.3% to 81 cents on the New Zealand stock exchange today.

Businesswire.co.nz

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