Danone defends offer as Frucor's share price reaches new heights

By Nick Stride

Friday 26th October 2001

SIMON ISRAEL: 'We're commercial people, we understand the beverage business'

Frucor bidder Danone yesterday defended its $2.35 offer for all the beverage company's shares, saying analysts who thought the price too low didn't understand the business.

"They [analysts] just do a simple DCF [discounted cashflow] valuation. They're financial people working from guidance they receive," Danone's senior vice-president, Asia-Pacific, Simon Israel, said.

"We're commercial people, we understand the beverage business and we know what it costs to grow it, so we're going to have a different view of the world."

"If all the analysts in the world were that reliable we could all be playing the stockmarket with absolute confidence, couldn't we?"

Mr Israel's defensiveness seemed misplaced as the consensus view among analysts contacted by The National Business Review was that the bid fully valued Frucor's New Zealand and Australian businesses, even if it didn't include much for the unproven "blue sky" investment in Britain.

Danone's offer is conditional on gaining acceptances for 90% of the shares and it has an option to buy 19.9% from Bain Capital, which owns 31% of the company.

Mr Israel wouldn't comment on whether Danone would exercise that option if it didn't secure 90%.

One analyst pointed out that, ironically, the shares might be worth more to the minorities than the offer price if Danone accepted a position as the cornerstone shareholder owning less than 100%.

That was because its distribution and marketing clout would add a lot of value to the company.

The shares yesterday morning hit $2.45 on fairly heavy volume of 2.8 million, suggesting some investors were speculating on a higher offer.

Mr Israel said Frucor had been "quite successful" in New Zealand but was "very young" in Australia.

"I note with interest that there are other people moving and investing heavily into the category now."

Britain was "a question mark."

"I think the business case there is something to look at in the future."

Danone's main emphasis if it won Frucor would be to build the business in Australia and the Asia-Pacific.

The French company was number one in China in berry-based and water drinks and number two, behind Coca-Cola and Schweppes, in carbonated drinks, and was Indoesia's largest beverage player.

"Frucor's base in fruit-based drinks and technology, energy and sports drinks, etc, fits nicely into our thinking on other categories that we may want to enter at some time in the future," he said.

Mr Israel, a New Zealander born in Fiji and educated here, said the company first came to his attention on a return visit.

"I had the opportunity to try the product just by the ferry terminal. I went in to buy a drink and was amazed at this wall of green stuff."

"I was with my daughter and asked her what it was. She gave me a lecture on how this drink was real cool and I thought I'd better look into it a bit more deeply."

"We picked it up as well across our monitoring system and so we put two and two together and said we'd better understand more."

If Danone's bid was successful the company would remain based in New Zealand, Mr Israel said.

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