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Further Extension of Offer for Frucor

5 December, 2001

Dear Frucor Shareholder

Further Extension of Offer for Frucor

I wish to advise you that Danone Asia Pte Ltd (“Danone”) is extending the deadline for receipt of acceptances for its offers for the shares and convertible notes in Frucor Beverages Group Limited (“Frucor”) to 5:00pm on 4 January, 2002. The other terms and conditions of the offer remain the same.
I would like to use this opportunity to review some important factors which may influence your decision to accept our offer.

Alternative Bidders

While Frucor’s largest shareholders, Bain Pacific and its associates, have accepted our offer, we are aware that many shareholders have not yet made their decision.

On 23 November, Frucor’s independent directors stated that they “have still not ruled out the prospect of a competing bid.” We believe this statement may have led some shareholders to postpone their decision to accept.

We are of the view that the possibility of a competing bid is critical information for the market and, especially, Frucor shareholders. Accordingly, over two weeks ago, we requested that the independent directors make a formal statement to the market on the status of any discussions with alternative bidders.

To date, we have received no response to this request.
It is now more than 40 days since we first announced our offer for Frucor, and no alternative bid has emerged.

Share market trading

Since the Grant Samuel report was published, Frucor’s share price has continued to trade downwards, closing at $2.37 on 3 December. This is marginally above our offer price but well below the low end of the Grant Samuel valuation range. It highlights again the reality gap that continues to exist between what Grant Samuel concludes and what the market is prepared to pay.

Moreover, since the announcement of our offer, there has been a major change in the shareholding base of Frucor. First, Bain Pacific and its associates have accepted our offer at $2.35 and are happy to see the bid proceed at that level. Combined with on-market sales, this means that around 60 per cent of the shares in Frucor have either traded on market at prices below the Grant Samuel valuation range or have accepted our $2.35 offer.

We note that many local New Zealand institutional investors have sold on market, with buyers being mainly international arbitrage and hedge funds. We also understand that, in many cases, these funds are not long term holders of the stock motivated by a fundamental view on valuation. Rather they are speculative buyers, taking a “gamble” on Danone increasing its offer.

Buying by these arbitrage and hedge funds has served to keep the price slightly above our offer price. We would caution shareholders that should Danone’s offer not proceed, these large arbitrage investors are likely to sell out, meaning that there is a strong possibility that the price will fall below our offer price.


We believe that our existing offer provides you with a full price for your Frucor shares, and we attach some recent commentary which gives you an additional and independent perspective on our offer.

We encourage you to accept our offer as soon as possible. This will enable us to declare our offer unconditional more quickly, meaning you will receive $2.35 per share in the shortest possible timeframe. If you wish to accept the offer, please complete the Form of Acceptance and Transfer sent with the offer, and mail in the reply paid envelope.

However, if our offer conditions are not met because insufficient shareholders accept our bid, the bid may lapse. In the absence of an alternative bid, we believe that Frucor’s share price is likely to trade below the offer price of $2.35.

If you accept our offer, you will be sent payment of $2.35 per ordinary share not later than seven days after the later of (i) 4 January, 2002; (ii) the date Danone’s offer becomes unconditional; and (iii) the date of receipt of your acceptance of the offer.

If you have lost your personalised acceptance form or reply paid envelope, or if you have any other questions on how to accept, please contact ComputerShare Registry Services in Auckland on 64-9-488 8700.

Yours sincerely

Simon Israel
Managing Director
Attachment: Newspaper Extracts

Frucor Offer Looking Tasty

“Investors should think twice before rejecting the $2.35 a share bid for Frucor…The company is expecting to report a disappointing result for the six months to December 31 and may need to raise more capital to strengthen its balance sheet. This suggests that its share price could fall well below $2.35 if the bid is unsuccessful and Danone walks away.”

- Brian Gaynor, NZ Herald (21 November 2001)

Frucor Dilemma

“Shareholders torn between selling on-market or taking their chances with Danone received a bit of guidance yesterday from broker UBS Warburg, which believes the Danone offer is fair but has told investors to sell on market while they have the chance. UBS Warburg's New Zealand analyst, Malcolm Davidson, questioned the $NZ2.53 to $NZ2.96 valuation in an independent appraisal commissioned by Frucor's independent directors and also queried aspects of Frucor's performance so far this year including a $NZ13.5 million increase in net borrowings since the end of June and below-budget earnings. Warburg believes the Danone offer is fair and the likelihood of an alternate offer is low…”

- Street Talk, Australian Financial Review (22 November 2001)

Cynical Chalkie Gags on Frucor’s V

“…Chalkie reckons the content of this [the Grant Samuel] report will have professional investors reaching for their sell buttons… Not only is the company’s budget behind the market’s forecasts, but the first four months are shy of budget…. Interestingly, Grant Samuel has ignored this under-performance – and past failures – and based its valuation on strong management forecasts. The valuer is more trusting than cynical Chalkie… …[A]fter reading the same information as Grant Samuel, [Chalkie] has come to the view that we shouldn’t worry too much about selling Frucor to foreigners.”

- Chalkie, The Independent (28 November, 2001)

Who is Groupe DANONE ?

Groupe DANONE is a France-based global food company, operating in more than 120 countries around the world. Groupe DANONE focuses on three main business areas: dairy products, biscuits and water. It is the world’s largest producer of fresh dairy products, the world’s largest manufacturer of sweet biscuits and the world’s leading producer of still water. Major global brands include Danone, Evian, Volvic and Lu.
Groupe DANONE – Summary Information (2000)

Turnover 14.3 billion Euros (NZ$30.8 billion)
Net Earnings 721 million Euros (NZ$1,554 million)
Number of Employees 86,657
Market Capitalisation 19.7 billion Euros (NZ$42.5 billion)
Listings Paris, London, Brussels, New York, Swiss Stock Exchange
Source: 2000 Annual Report except for market capitalisation (04/12/2001)

Groupe DANONE in the Asia-Pacific region
Groupe DANONE has a strong and rapidly growing presence in Asia-Pacific through its subsidiary Danone Asia Pte Ltd, which is headquartered in Singapore. In Asia-Pacific, approximately 88% of Groupe DANONE’s 2000 revenues were derived from beverages and biscuits sales. Groupe DANONE is the largest beverage company in China and Indonesia, and is number one in the water segment in Asia-Pacific, with over 20% market share across the region. Groupe DANONE’s total revenues in Asia-Pacific were 1.6 billion Euros in 2000 (NZ$3.4 billion).
Since 1990, Groupe DANONE has acquired a number of businesses and entered into strategic alliances across the beverage, biscuit and dairy product categories in China, Indonesia, New Zealand, Malaysia, Singapore, Pakistan, Australia and Hong Kong. Geographically, Groupe DANONE’s operations in Asia-Pacific are summarised below.
Asia-Pacific Revenue Breakdown by Region (2000)

Groupe DANONE has an existing presence in New Zealand through its subsidiary Griffin’s Biscuits Limited, which it acquired in 1990. Griffin’s is New Zealand’s largest biscuit manufacturer. Since its acquisition, Griffin’s has strengthened its market position and developed a number of innovative products, such as its recent move into cereal bar snacks.

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