Drinks giants eye Frucor bid

By Nick Stride

Friday 9th November 2001

Frucor's biggest shareholder, Bain Capital, is today expected to offer its shares to bidder Danone, allowing the French company to secure up to 31.2%.

Danone's $2.35 takeover bid went "live" on Wednesday when it mailed its offer to Frucor shareholders.

Under an option agreement Bain has three business days - until the close of business today - to tender its shares into the offer.

If it does so it will get any higher price Danone may offer. Analysts said Bain was keen to pull in its horns as the global economy slowed and was more likely to take lock in Danone's offer than to hold out to see if a competing bid emerges.

Sharebrokers are recommending Frucor holders hang onto their shares, at least until Tuesday when the independent directors expect to release Grant Samuel's appraisal report.

The independent directors have appointed Credit Suisse First Boston to solicit a competing bid.

One player, reckoned to be Cadbury Schweppes or Nestlé, is rumoured to be having a serious look.

Nestlé has no distribution for its dairy drinks in either New Zealand or Australia and has been blocked by other beverage players, such as Cadbury, by exclusivity agreements with independent distributors.

Frucor already distributes Cadbury products in New Zealand but Cadbury would benefit from owning the channels. A potential stumbling block is a restraint of trade against buying into Frucor arising from an agreement by Coca-Cola to distribute Schweppes brands.

Cadbury has its own Australian distribution but would not be keen to see Frucor's channels fall into a competitor's hands.

Analysts see Danone's call option at $2.35 a share over 19.9% of the 31% held by Bain as a defence mechanism.

If another bidder emerges at a higher price, the option, if exercised, would lower Danone's average entry cost. And if a competing bid carried the day, the holding would ensure Danone could exit at a profit.

Sharebroker Forsyth Barr Frater Williams expects the successful bid price will have to be over $3 a share if Danone's offer is contested. It values Frucor at $2.42 a share.

Salomon Smith Barney values Frucor at $3.04 a share and said there was a 70% probability Danone's offer would have to be raised by around 15c.

Both JB Were and Credit Suisse First Boston view the bid as light and recommend holding the shares. JB Were said Danone's $2.35 only marginally covered the value of the Australasian business.

UBS Warburg said the offer was fair but also recommended investors hold.

The Danone bid is conditional on 90% acceptance but Danone may waive the condition.

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