Fonterra lifts bid for National Foods

March 2, 2005

Fonterra lifts bid for National Foods

Fonterra announced today that it will top rival bidder San Miguel Corporation's offer for National Foods by 10 cents per share, increasing to 30 cents per share if it acquires 90% or more of National Foods.

Fonterra's revised offer is $6.00 per share. It will offer $6.20 per share if it acquires 90% or more of National Foods.

Fonterra's $6.00 per share compares with San Miguel's $5.90 per share. On 31 January 2005 National Foods paid shareholders a dividend of 10 cents per share and San Miguel's $6.00 offer will be reduced by this 10c per share.

Fonterra's offer includes an option for shareholders to accept cash or Redeemable Preference Shares (RPS), or a mixture of both.

Fonterra also confirmed that Yoplait has agreed to continue to support National Foods under Fonterra ownership. Fonterra will waive all of the conditions of its offer, other than the 50% minimum acceptance condition.

An offer of $6.20 per share values National Foods at $1.9 billion. Fonterra is already National Foods' largest shareholder with a 19.02% stake in the company.

Fonterra Chief Executive Andrew Ferrier said that since its original offer, Fonterra had assessed the San Miguel offer and completed due diligence on National Foods.

"We now have a more informed view. The due diligence confirmed our assessment that National Foods presents a valuable strategic opportunity for Fonterra. This has enabled us to make this attractive revised offer to National Foods shareholders," said Mr Ferrier.

If National Foods shareholders accept Fonterra's offer of $6.00 per share and Fonterra acquires 90% or more of National Foods, those shareholders will automatically receive the higher price of $6.20 per share.

For shareholders who elect to receive RPS, they will be entitled to a cumulative dividend at an annual rate of 7%. RPS are not the same as shares held by supplier farmers. They mature on 15 March 2010, but holders may redeem the RPS at any time on 60 business days notice.

Mr Ferrier said that in addition to the attractive dividend rate, the RPS will carry a strong investment grade rating and are expected to provide rollover relief from capital gains tax if Fonterra becomes the owner of 80% or more of National Foods. Fonterra has sought a class ruling from the Australian Taxation Office in relation to rollover relief and expects a favourable ruling to be issued shortly.

If Fonterra ends up owning 100% of National Foods, Mr Ferrier said that Fonterra and Yoplait may establish a joint venture in Australia and New Zealand, but that decision would be taken at a later date.

"Fonterra's proposal represents a significant premium to National Foods' market price prior to the announcement of Fonterra's offer. An offer of $6.20 would represent a 35% premium to the National Foods share price on 27 October 2004, the day before Fonterra announced its original offer, after accounting for the 10 cent dividend paid on 31 January 2005. The offer of $6.00 represents a 30% premium on the same basis.

"Fonterra's offer implies an earnings multiple at the upper end of comparable transactions. This clearly illustrates the attractiveness of the opportunity for National Foods shareholders."

Fonterra Chairman Henry van der Heyden said that the asset was a good fit for the company's strategic ambitions in Australia.

"It makes good sense for us to grow our Australian consumer foods business and, importantly, we are pursuing our strategy for Australasia in a way that will deliver value to our shareholders," Mr van der Heyden said.

"We are committed to Australia and see a lot of merit in strengthening the respective positions of the Australian and New Zealand dairy industries.

"There is a lot to be gained from improving our global competitiveness and from working together to remain competitive against the emergence of low-cost competitors elsewhere in the world. Global demand is growing and it is in New Zealand and Australia's interests to position ourselves to take advantage of that growth."

Fonterra's offer has been extended to March 29, 2005. Shareholders will not pay brokerage on either the cash offer or the RPS offer.

National Foods shareholders with any questions about the Fonterra offer can call our shareholder information line on 1800 333 360 (from Australia), 0800 776 646 (from New Zealand) or +612 9278 9259 (from all other countries) between 9am and 5pm Melbourne time.

- All currencies are stated in AUD unless otherwise noted -

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