Southcorp’s defence is stretching credulity, as Crikey grog correspondent Peta Luma explains.

“Blue” has featured in a few consumer products in this country. There was of course Midnight Oil’s great song Blue Sky Mine about the evils of asbestos mining at Wittenoom. There was also Blue Nun among the early wine brands in the 70s, while the phrase “Blue Sky” has an interesting connotation when used in finance, especially mining.

From memory that loveable rogue Pierpont has a company called Blue Sky Mines tucked away somewhere in a balance sheet in his column in The Australian Financial Review.

But I think Southcorp has given us a new financial product of a slightly different kind: The Blue Sky Whine! Or why Foster’s is nasty for only wanting to pay $4.17 a share when we won’t put a value on the company’s share in our defence.

No, it’s those nasty folk at Foster’s that deserve all the blame. They will be getting $2.13 in synergistic benefits from integrating the two businesses and adding to the cost cutting and restructuring that the company has already started on.

Southcorp released a “defence statement” today – view it here. It didn’t have much of an impact. Southcorp shares finished unchanged at $4.38 as hedge funds still punt on a rival offer appearing.

But fancy accusing Foster’s of not wanting to pay fair value for Southcorp shares and trying to hog all the upside and ‘synergistic’ benefits for itself.

What does the Southcorp board want, fairies at the bottom of the balance sheet? Companies involved in takeovers are greedy, no matter what they say. It’s the driving force, to get wealthier! When have takeovers been altruistic?

So why hasn’t the Southcorp board commissioned an independent report and put a price on the value of the shares? And they aren’t exactly overweight Southcorp shares themselves, are they? Well, even at the most optimistic valuations, getting to $4.17 would be a stretch too great for even the best Blue Sky miner.

Just look at the Southcorp share price in 2004. There was an early peak of around $3.50 in May, then it fell to $3 in July and then started the long run up towards $4.50 at the end of the year when an ASX query and company reply (‘no reason’) sent it back to around $4.25 in early January before the Oatley family sold at $4.17 and Foster’s revealed its bid at the same price.

The early run-up was on takeover speculation, and the drop to $3 or so was the only time when the stock was approaching a proper value (most analysts had it under $3 a share last year). The rest of the year it was inflated by speculation, “Blue Sky”, of a different sort to the moaning and whining now coming from the board, but in the same family of unrealistic expectations.

The Foster’s price has been criticised as being too high and some analysts find it hard to see how the brewer and wine group can justify paying the premium, synergistic values and all.

One of the tasks for a company board is to try and make sure the share price reflects true value, that through full and proper disclosure all investors have a good idea of the company’s intrinsic value.

Assuming this has been done and dismissing the inflated price last year because of the takeover speculation, the Southcorp board, through no work of their own, have got a high $4.17 cash offer on the table.

What’s wrong with that? The Southcorp board of course is reluctant to say what might happen to the company’s share price should Fosters walk away or the offer fail, and no competing bids emerge.

There is actually a good case to be made for the Foster’s shareholders to be the ones complaining about the bid. The long suffering ones at Southcorp should be cheering the slightly odd justifications from Foster’s for paying too much.

If no new bids emerge and Foster’s walks away, watch the ‘blue sky’ disappear from the Southcorp share price and whines of a different sort emerge (and watch the Foster’s share price recover).

Peter Fray

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