However, with a deal giving Talley’s 70% already in the bag and the offer price considered too low, it looks like business as usual at New Zealand’s second-biggest dairy processing company for some time yet.
Talley’s, a Nelson-based food group and owner of meat company AFFCO, is Open Country’s biggest shareholder, holding 60.52% of the shares.
Talley’s reached that shareholding in January through an agreement with the second-biggest shareholder, Singapore-based commodities trader Olam International, to buy nearly 5% of Olam’s then 25% stake at $2.05 a share.
The agreement also allows Talley’s to buy another nearly 10% of Olam’s remaining shareholding mid-year, which would bring its controlling shareholding to 70%.
It is understood Olam was the seller in the deal, rather than Talley’s seeking to increase its stake in Open Country.
Olam’s accounting performance and debt level have been under scrutiny for some time in Asia by Muddy Waters Research, whose report in late 2012 drew parallels with failed United States energy company Enron.
But before Talley’s can increase its shareholding in Open Country, under the Takeovers Code it must make a partial or full takeover offer to all shareholders.
Shares in Open Country, an unlisted public company with processing plants in Waikato, Taranaki and Southland, are held tightly, with the top three shareholders, Talley’s, Olam, and the Dairy Investment Fund, owning nearly 90%. The Dairy Investment Fund has 10.14%.
Talley’s partial takeover offer of $1.85 a share for the 24% of shares it does not already own or control has been rejected as too low by Open Country chairman Laurie Margrain.
Independent adviser Northington Partners valued Open Country shares at $2.17-$2.49 in a report on the offer.
The offer closes on May 24.
By moving to 70% ownership, Talley’s will be allowed under the Takeovers Code to creep to 90% over time, by buying up to another 5% of the shares on issue each year 12 months after this offer closes.
Given the agreement with Olam, Talley’s was guaranteed to reach 70%, Northington Partners said.
In practice, it will control Open Country. Olam, which has two directors on the Open Country board, will lose the right to appoint directors when its stake falls to less than 20%.
Because of the agreement with Olam, Talley’s had no incentive to increase the offer price in response to low acceptance levels from minority shareholders, the report said.
By moving to 70% ownership, Talley’s will be allowed under the Takeovers Code to creep to 90% over time, by buying up to another 5% of the shares on issue each year 12 months after this offer closes.
However, it does not have to wait a year if it wants to make another partial or full takeover offer.
But it is understood it will be comfortable for the foreseeable future with 70%.
