The takeover heat has turned up at Namoi Cotton, with its main rival, and Australia's second largest cotton ginner, launching a surprise $122 million counter bid to derail Louis Dreyfus Company's ambitions.
The Singaporean-based Olam Group owns Queensland Cotton which has long been a key ginning and merchant competitor to Namoi's operations in southern Queensland and NSW.
Namoi Cotton's executive chairman, Tim Watson, said Olam's non-binding indicative offer came as an "absolute surprise" when he received notice of its intentions on Wednesday.
The Olam Agri division of the global trading and processing giant has actually confirmed two ownership bid strategy options for Australia's biggest cotton ginning business.
Olam would offer 59 cents for all Namoi Cotton's shares via a scheme of arrangement, or an alternative off-market bid of 57c a share for at least a 50.1 per cent stake in the industry pioneer.
The 57c/share bid would give Olam's off-market takeover offer a total value at $118m.
Namoi name to stay
If successful, Olam has committed to maintaining the Namoi business under its historic and reputed Namoi Cotton brand, and to invest in "growing the Namoi franchise profitability".
Shares in Namoi Cotton leapt 10c to 59c as news of the counter bid was released.
French-owned Louis Dreyfus, which already holds a 17 per cent stake in Namoi Cotton and is Namoi's lint marketing joint venture partner, launched its takeover move, worth up to $109m, in November.
That initial approach won the support of Namoi directors and the company's biggest shareholder, the Sydney-based investment group, Samuel Terry Asset Management.
STAM has now switched sides to support Olam.
LDC's plans became a binding offer in January after it completed due diligence investigations of Namoi Cotton's accounts.
The rationale behind Olam's double barrel counter bid is to address the risk that its full $122m offer may not win approval by the required 75pc majority of Namoi shareholders, including LDC.
The concurrent takeover would only need to give Queensland Cotton's parent a bare majority - or anything more than 50pc - to go ahead.
Olam co-founder and chief executive officer, Sunny Verghese, said combining Namoi's 10 gins, warehousing and cottonseed operations with Olam would bring significant benefits to the 62-year-old Toowoomba-headquartered company.
In a letter to Namoi's Mr Watson detailing the indicative offer, Mr Verghese emphasised Olam's global expertise, extensive customer franchise and track record of driving growth in its businesses "as demonstrated in Queensland Cotton's success".
Olam has owned Queensland Cotton since 2007, coincidentally completing its acquisition soon after Namoi rebuffed QC's own takeover approaches which had offered a similar share payment to LDC's current bid.
"Acquiring Namoi is in line with Olam's strategy of strengthening and expanding its cotton merchandising and ginning capabilities in Australia," Mr Verghese said.
"Namoi's gins, grain and cottonseed storage facilities, warehouses and access to rail transport, would be highly complementary to Olam's existing operations."
QC has nine gins between Emerald and Warren.
Good for growers
Mr Verghese said a successful merger would also enhance Olam's support and worldwide service offerings to Australian cotton farmers and communities, leveraging its local market capabilities and global reach to support more sustainable cotton farming.
"Being a cotton farmer ourselves in both Australia and Brazil, we understand and service cotton growers' requirements better," he said.
Louis Dreyfus has until mid-next week to respond to the Olam move with its own assessment of the offer and any potential counter bid.
Namoi Cotton directors will make no decision on the developments until that deadline expires and advised shareholders no action was required at this stage.
Mr Watson said while clearly Olam and QC had been interested in Namoi's business for a long time, no approaches had been made until now.
"The board has, however, always indicated it is open to entertaining a superior offer," he said.
"This is a good business, which we've always had confidence in - I'm not entirely surprised Olam decided to provide affirmation of our operation.
"We've always had confidence in what we do and we were very pleased LDC saw that value, offering the strategic opportunity of capital and global support for Namoi's Australian business.
"We will honour our obligations to LDC, but we now have a potential competing offer and we will consider developments as the week progresses."
The original LDC offer emerged last year after Namoi looked for potential capital restructure or partnership options to bolster its footprint and capabilities if confronted with another drought like the crippling 2016-2020 event which savaged cotton processors.
"We wanted to better position Namoi for the longer term, including dealing with the potential impacts of climate change and government water reform policies on cotton production," Mr Watson said.
"While things have been going well for our business lately it's also been a good time to look around at our options and potential fresh investor support."
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
