Struggle For C.F.M. Enters New Phase

Press, Volume CIX, Issue 31921, 24 February 1969, Page 16

Struggle For C.F.M. Enters New Phase

(By the Commercial Editor) The struggle for the control of Canterbury Frozen Meat Company, Ltd, enters a new phase, now that the Minister of Agriculture (Mr Taiboys) has announced that the Government does not intend to interfere in the take-over bid for the company by Waitaki Farmers’ Freezing Company, Ltd.

This leaves matters entirely between the directors of the two companies, and the C.F.M. shareholders. If South Island farmers as a body wanted to intervene, they would have to move very fast.

The C.F.M. shareholders J have made it quite clear —at! the annual meeting and: through the sharemarket—p that the bid will not suceed. And the shareholders are 1 right, the bid is not good I enough. < The very fact 'hat the bid!' can be described by financial;’ commentators as “the most / brilliant takeover deal for: years” underscores this judg-jt ment This is the sort of take- i over where one side stands to' < lose whatever the other side t

gains. And the better the bid is from the viewpoint of Waitaki, the worse it is for the C.F.M. shareholders. Three Courses In any case, because of the C.F.M. shareholders’ stand, the ball has now been thrown back to the Waitaki directors, who have three courses of action open to them.

I First, they can leave matters as they are, except perhaps serve notice of an extension of the time for acceptance. The bid runs to next Friday, with March 31 as the last date on which it may be 'declared unconditional. This extra time might then be used to pursuade C.F.M. shareholders. Second, they could increase the amount of cash offered in part consideration. In that case also an extension of time would be needed.

These two cases, extention of time and raising the cash part of the offer, are the only variations permitted by sec-

I tion 9 of the Companies I Amendment Act, 1963. I If the Waitaki board wants Ito adopt the third course of action, and increase the bid jby a variation of the share j exchange, the present offer would have to be withdrawn, and notice of a new offer ; would have to be given. This offer would have to comply • afresh with all the regulations pertaining to take-over 'bids, exactly as if it were a I fresh bid. I In that case the bid may I drag on for another three months at least. . There are other possibilites —such as open market operations and arbitrage, or an iactual reduction in the bid | —but they are so unlikely I that they will be left out of I the discussion. , | A study of the Waitaki ack counts shows that about 50c a

C.F.M. share would be the maximum one could expect, and this would have an adverse affect on Waitaki’s liquidity. Say that 50c were offered: this would value C.F.M. shares, the way things stand at present, about 300 c. Would that be so good enough? I do not think so. I suggested on Monday, December 16, that if the offer were accepted one might expect the new Wai-taki-C.F.M. shares to fall to a price range of 130 c to 150 c. All the figures and calulations were given in the article, together with the assumptions on which some of the figures were based, for everyone to check. The conclusion was not challenged. Everything that held good then, holds good now, mutadis mutandis, with the same force. Great Leverage When the bid is looked at purely as a straightforward financial proposition, its difficulty is the great “leveriage” exerted by the C.F.M. capital and profit on the ! future combined company and : the likely price for its shares. ■ This is not quite the same jas saying what the Leader of the Opposition (Mr Kirk) said I on Saturday, but Mr Kirk’s’ : remarks draw attention to the (same situatiin. He said that in some, take-overs shareholders were virtually bought off with their own reserves, and this remark would certainly apply to the cash element in the Waitaki bid for C.F.M. So, if the cash proportion were raised to say 50c, shareholders would actually give themselves a bonus, and finish up with 6 shares (for every 5 they hold now) which would most certainly decline |in value. Realistic Price i Even if we accept 170 c—the i price mentioned by a Christ-1 church sharebroker—as the’ level to which the Waitaki shares will fall, there is no money in it for C.F.M. shareholders.

C.F.M. shares are now selling around 205 c. This no doubt reflects the expectancy of cash and bonus issues, but it is a much more realistic price than the 175 c of before | the bid. And the shares have still room for growth. | The controversies surround- | ing the bid have at least brought home to the C.F.M. shareholders that their company is a lot better than perhaps they thought.