olam wants in to australian agriculture

Olam ups QCH bid to counter French rival

* Geoffrey Newman
* May 29, 2007

OLAM International hopes to at last have secured a foothold in the Australian agribusiness market after yesterday upping its bid for Queensland Cotton Holdings and securing the support of directors.

Delivering what may be the knockout blow in the fight for control of Australia's biggest cotton producer, Olam lifted its offer 6 per cent above the rival offer from France's Louis Dreyfus.

Olam chief executive Sunny Verghese said the company hoped to use Queensland cotton as a base to expand into grains, particularly wheat, sugar, dairy and edible nuts.

Mr Verghese said Olam also wanted QCH because Australia was the only cotton-producing nation in which it didn't have a presence. It also wanted to fill a production gap in long staple, premium-quality cotton and sell QCH's pulses and beans production into vegetarian India.

Olam operates a global integrated supply chain for 14 agriculture and food products sourced from 12,000 collection points in 35 countries. The company has been growing at 25 per cent a year for the last decade.

Singapore-based Olam increased its takeover offer for Queensland Cotton Holdings by 60c to $5.65 a share and offered $5.90 per share to all shareholders if it got at least 75.1 per cent of the stock.

The offer, which values QCH at $166.45 million under the higher price, was unanimously supported by QCH directors.

The offer was 6.4 per cent higher than the $5.31 a share counteroffer from French trading house Louis Dreyfus last week. Olam also cut the threshold for its higher offer from 90 per cent to win over shareholders worried Louis Dreyfus would hold on to its 19.9 per cent stake in the company. Olam has 6.7 per cent.

"By setting the threshold for the second-tier price at 75.1 per cent instead of 90 per cent, shareholders will have the potential to enjoy this higher price regardless of Louis Dreyfus's intentions," Olam said in a statement.

Olam also waived other conditions of its original $4.75 a share bid in March and said shareholders would be paid in cash within five days of accepting.

It also warned shareholders that if they accepted the Louis Dreyfus offer they could not accept the Olam offer.

There was no response from Louis Dreyfus yesterday.

QCH shares soared 49c, or 9 per cent, to $5.90, suggesting the market sees little chance of an even higher bid.

It was a "full valuation" for the company, though not excessive given the $5.13 independent valuation and the $3 million to $4 million a year in synergies expected from combining the two businesses. Olam had also factored in a declining trend in Australian cotton production because of an expected ongoing water shortage.

ABN AMRO Morgans analyst Belinda Moore said QCH's financial state - it is expected to make losses for the next two years - wouldn't faze Olam as it took a medium-term view and saw the company as a beachhead for a broader move into Australian agriculture.

Olam, the world's fifth-largest cotton producer, was also not ruling out buying up more of the industry in Australia. "There are opportunities ... but that is little bit more of a longer-range plan," Mr Verghese said.

QCH chief executive Richard Haire said it would be difficult for Olam to expand further in cotton locally. "It would be problematic to go much beyond current market share level," Mr Haire said.

QCH, which has about 30 per cent of the market, abandoned its attempts to merge with the part grower-owned Namoi Cotton in 2005 and the next two-largest players, Auscott and Dunavant, are already in US hands.

Unless extended, the Olam offer is open until June 15.