australian agriculture on the global hitlist

QCH board likes new Dreyfus offer

* Geoffrey Newman
* June 02, 2007

FRENCH trading house Louis Dreyfus has upped the ante again in the bidding war for Queensland Cotton Holdings, offering shareholders an unconditional $5.85 a share, a move immediately accepted by the cotton producer's board.

The offer from Louis Dreyfus, the world's largest cotton producer, was endorsed by the board even though it was 5c a share lower than the premium price offered by rival Olam International.

QCH chief Richard Haire said the board had endorsed the Louis Dreyfus offer because, with the French determined to hold on to their existing 19.9 per cent stake, there was no realistic prospect of Olam achieving the 75.1 per cent threshold required to trigger the premium price.

Last Monday, QCH endorsed an offer from Olam of $5.65 a share, but the price for all shareholders would have been increased to $5.90 if it secured at least three-quarters of the stock.

"The revised offer of $5.85 is clearly superior to the second Olam offer of $5.65," QCH said yesterday.

The offer values QCH at $165 million and is 24.4 times QCH's drought-affected earnings of $6.75 million for the last financial year.

Olam executives were believed to be holding an emergency meeting last night to consider a counter-offer.

The Singapore-based manager of agricultural commodities started the takeover race with a bid of $4.75 a share on March7, prompting a counter-offer from Louis Dreyfus which was trumped on Monday.

Tommy Malone, chief operating officer of Allenberg Cotton, the US cotton division of Louis Dreyfus, said yesterday that the group's global capabilities "deliver the maximum potential benefit to, and comfort for, Australian cotton growers".

Both Olam and Louis Dreyfus see the Australian company, which processes around 30 per cent of the local cotton crop and also has significant ginning operations in the US, as the platform to expand further into Australian agriculture.

Tom Elliott, director of Melbourne-based hedge fund MM&E Capital, said it was unlikely to be the end of the bidding war. MM&E has been buying up QCH shares to profit from the battle and now owns 8.1 per cent.

Mr Elliott said both companies were determined to get a foothold in Australian agriculture and, for the loser, companies such as Futuris and ABB Grain were obvious possibilities.

QCH said it had agreed to an increased penalty to be paid to Louis Dreyfus if it withdrew from the latest offer. If the offer is successful, QCH will have to pay a total of $1.6 million in break fees to Olam.

QCH directors will not benefit from the latest bid increase, having agreed to sell their shares to Olam as a condition of accepting its last offer.

QCH shares were placed in a trading halt for most of yesterday. They last traded at $5.89.