Olam to raise funds if Farming Systems bid successful

Olam claimed Farming Systems' operational target-setting was unrealistic and requires significant strategic changes.

Olam International will look to tap shareholders to address New Zealand Farming Systems Uruguay's funding shortfall if the Singapore-based company succeeds in its takeover bid.

The Singapore-listed food and ingredients conglomerate says Farming Systems was "unrealistic" in setting its operational targets, and needs significant changes to its strategy, according to the company's offer document. Farming Systems reliance on farm sales is "undesirable and unsustainable" as a source of short-term funding, Olam said.

"It is Olam's view that given NZFSU's performance history and financial situation, equity is a more appropriate source of funding as compared to additional debt," the document said.

"Olam believes that NZFSU may need to call on shareholders to support one or more equity capital raisings."
Olam is offering shareholders 55 cents apiece after it entered into an agreement to purchase PGG Wrightson's 11.5 per cent stake in Farming Systems subject to regulatory approval, valuing the target at $134 million.

The Singaporean company said the takeover will let it "realise significant cost advantages and the advantages of backward integration into dairy farming," in a statement lodged with the Singapore Exchange. "The company believes that running such a business in Uruguay, as opposed to certain other countries would be relatively more cost effective."

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