Arla Foods Uk Share Discussion Threads

[damofarl] 02/1/2007 13:51

Happy new year.

A few thoughts on previous postings; the deals still on, with the delay being related to fiscal tidying up rather than concrens over pension liabilities. Amba are fully aware of the pension requirements, and include them in their 04/05 accounts, so nothing has surprised them in htat regard.

Notwithstanding the financial numbers posted by tiredoldbroker, i do believe the val;ue is strategic for amba. ARU is the biggest producer, by volume, but they've yet to translate that into the profits of RWN and Dairy Crest, or the rising share price ot those 2; if one says that these three have the market, then one has to ask if RWN, Dairy Crest have run ahead of themselves or ARU is lagging behind(or both!). As has been said the CC will not allow a takeover amongst the three, although a European co. would probably get the nod. there could also be consolidation amongst the coops, Milklink, Dairy Farmers of Gt. Britain etc. so there will always be 3/4 major players.

I don't see anywhere that amba have a stated mission vis-a-vis ARU to make it member owned (AFMP would facilitate this greatly), although this could be a reason for takeover delay if they are trying to tidy it all up at the same time.

An article on Farmers Weekly (last Nov.)interested me, synopsis below:

'The UK could be facing a shortage of milk by November 2011, which raises the prospect of milk imports, a new report has projected. Kite Consulting's Milk Forecasts report has warned that the UK is heading for its largest ever under quota position. "The exodus from the dairy industry is running at 7% and accelerating," said the report's co-author, dairy industry consultant John Allen. "In the next three years one in five dairy farmers will quit."

Supply decline

At that rate of attrition just 12,300 dairy farmers will be left in the UK by 2012. And with annual demand at 12.6bn litres if the decline continues supply will be as low as 12.68bn by 2011. This means by November of that year, when the seasonal downturn of supply is at its lowest, the UK could see a real milk shortage.

"Less milk would be manufactured into cheese, butter or powder, drawing in imports to fill the shortfall and exposing us to world market prices and exchange rate fluctuations," Mr Allen warned. But Arla Chief executive Tim Smith said that importing liquid milk was unlikely. "Anyone contemplating importing milk is contemplating financial suicide. The eye-watering costs of transporting liquid milk from abroad make it unviable."'.........

The last paragraph interests me most; Amba has a surplus of liquid milk, so if the above report is realised (surely supply and demand will kcik in?), UK milk will be used to meet liquid commitments, and the cheese/butter/powder could all be imported, with Amba/ARU best equipped of the three UK groups to take advantage. Thats one reason why id rather have amba 'shares', or have ARU kick about for another 18 months.

Finally, until i see Amba's 05/06 ac's posted (still waiting?) with negative news on ARU, i believe the deal is very much on. Good luck all for the year ahead. D.

[deniscaff] 29/12/2006 19:42

Gerry

I'm not usually so blunt but 3 suppliers to 2 will not happen , Arla, Dairy Crest or RWD would never get the OK from the CC to aquire or merge with each other and the the Major retailers will continue to keep them on their toes by moving the supply about but not to the extent of sending one under.

Harry new year to you all.

DC

[gerry321] 28/12/2006 22:06

tiredoldbroker
You make a lot of pertinent points and I for one wouldnt challenge your accounting......
I would emphasise however that as a supplier of a basic commodity and UK market leader at that Arla could be viewed as a relatively low risk co in a low risk sector of the economy........This ought to attract a small share price premium
Also
........ as a prospective coop business it potentially offers a trustworthy home for farmers seeking long term deals for their products
and
........with the capability to integrate price sensitivity models which link the cost of production and the selling price to supermarket chains........coupled with its external resources
arla is thus well placed to be one of the two suppliers who eventually survive from the 3 suppliers at present
and make no mistake
when milk is supplied by two and not 3 suppliers the balance of power shifts across the table from the buyer to the seller....
.....since it is possible to maintain an informal minimum price agreement with two parties that is too risky with 3 parties..
.........leading eventually to a relatively cosy market with higher milk prices all round and little or no price competition on this commodity between the supermarkets

[quepassa] 28/12/2006 13:06

Yes, a lot of this may be correct in an open sale of ARU but you cannot ignore the strategic importance of Arla Uk to Arla amba - and that is where the added value lies. The marriage value of Arla amba and Arla UK is worth significantly more than a basic historically-calculated p/e valuation of the company.

As Gerry pointed out Arla amba already "own" 51% of the pension fund and were aware of the pension fund challenges before they declared talks.

Arla Uk is the vital spring-board for amba into the UK and European markets. They are not imo going to let this opportunity go, especially after recent debacles with Campina and the Middle-East affair.

Personally believe that the institutions are indeed holding out for a higher price than 72p. I continue to see a price nearer 80p. - Time will tell.

[tiredoldbroker] 28/12/2006 12:50

I think the facts are still what they were a couple of months ago - ARU is a low-growth business in a market which is already consolidated and highly competitive. It has a 30 September year end and to 30/9/07 the forecasts are a pre tax of £43.1m and eps 4.92p, then into 2008 £47.6m and 5.39p. That increase in the pre-tax is all the benefit to come from plant closures and disposals in the medium term; you simply cannot accurately forecast anything longer term than that as there are too many imponderables.

So the absolute, unavoidable fact is that a company like this isn't ever going to command a p/e ratio much over 14 - indeed, there's a case for saying the p/e shouldn't exceed 10. You can buy genuine growth stocks with more reliable prospects on a long-prospective p/e of under 14 in a great many cases.

14 times the long-prospective earnings per share is 75.46p and I still tell you that the offer, when it comes, will be a little under that level. There's the pension deficit to fund and many holders - including institutions - will be galloping for the door at 72p after seeing the shares down in the 40s earlier this year.

Unless you can make a sensible case for a company like this to have prospectively much higher and more reliable earnings, I really don't think it makes any sense to suggest higher prices, now or in 12 months time.

[gerry321] 27/12/2006 22:04

..........In fact
Maybe we small PIs should be looking for this bid to be unsuccessfull and be resurrected in about 12m when it ought to be around 90p

[gerry321] 27/12/2006 13:19

Typo/Que
Amba are described in the article as a potential "new owner" from whom the pensions trustees have to secure a committment to fund the existing deficit

Surely Amba are already the "owner" by virtue of their 51% stake in Arla UK
and hence are already obligated to maintain the existing deficit........perhaps only from UK resources
The only difference I can see is that the acquisition of 100% of the shares may involve a technical change in the definition of the "owner" from a UK co to a UK subsidiary of a non UK co
.............perhaps requiring Amba to commit non Arla UK resources if needed to fund a UK pension deficit........??
Can`t really see the pension issue as a show stopper.......if it is somebody on the Amba Board needs their bottom smacked since the deficit existed and was no doubt evaluated when the merger took place 3 years ago
The strategy behind Amba`s initial merger was predicated on eventually extending the coop ownership concept to the UK .........events in the middle east have only strengthened this argument by reinforcing the reduced volatility of the UK market.......
......So I conclude the deal will go ahead and all this pension stuff is simply a tactical ploy to get the price down by frightening the funds
In any event if in fact the deal does fall through or get postponed the benefits of £100m capex and closures which have yet to be fully reflected in the bottom line ought to emerge during 2007 and enhance the sp
.........making the eventual bid share price even greater............

[quepassa] 27/12/2006 07:57

Thanks for giving the link to the article which also appeared in The Sunday Times.

The article could have been cobbled together by the journalist just by reading the postings on this bb over the last few weeks.It adds nothing that we did not already know.

We already know that negotiations have been protracted due to the pension scheme questions.

From what I recall of the article, there is no authoritative source mentioned in the article, no quotes from company representatives or attributions to milk trade specialists.

The Headline is attention-grabbing but that's all - and certainly did not give any facts or hard evidence of any nature in my opinion that merger talks are in trouble.



IMO/DYOR.

[typo56] 27/12/2006 07:33

Anglo-Danish milk merger threatens to go sour

[hammy davies snr] 22/12/2006 13:38

Christmas Tree Shake, imo.

[lord r] 22/12/2006 13:12

Denis

All the best for Christmas and the New Year!

Hope this one will come good for you soon.

[gerry321] 19/12/2006 18:46

Does anybody have a theory as to why we still have a sizeable volume of stock changing hands so late after the bid announcement .....?
Could it be something to do with traders being caught short of money or stock by the length of time it is taking to announce a bid............??

[damofarl] 17/12/2006 13:30

I'd agree the pensions are probably the main reason holding up announcement, bearing in mind there are a number of different schemes to deal with (Claymore, Express, Arla etc.). Another consideration (delay) maybe dealing with the ARU jv's such as Claymore/Staplemead etc,- their partners may have first refusal clauses in the event of takover.ARU's board may also being pushing for a higher price, but realistically this is a non starter with amba's 51%. I still stick with 72 as with their control amba can argue that this is at a 12 month high, and a 40% premium to preannouncement share price It would be hard for ARU to argue with the black and white of that, even though personally i think amba have cleverly engineered the price down. I don't doubt an announcement is forthcoming; amba's year end was the same as ARu's but they've yet to post 05/06 accounts, i think they're holding it back to put 'ARU full control' news in the Board's statement, some good news to smooth over the coop's members dissapointment last year at the Campini merger failing.

At a guess of 72, i agree it seems strange that people are not taking the 10% upside, but then nothing is guarenteed; as for Wiseman/Dairy Crest laughing at the takeover, with ARU preoccupied and taking its eye of the ball, i'm not sure i would agree with this; whilst probably true of the last 2-3 years, i think amba's influence of ARU has been crucial in bringing a hotchpotch of disjointed assests to fruition, takinga strategic longterm view (rather than fire fighting the old Express/ARU way), and its very much buisness as usual for ARU.

Personally, my regret is that the offer is (will be) cash, and not shares in a incorporated amba, as frankly i think (at whatever takeout price) amba are getting the cream of ARU cheaply, and amba (for a coop) seem rather astute in their worldwide dealings, and would itself get taken out. Just my own ramblings of course! D.

[gerry321] 16/12/2006 21:32

Den
thanks fo info..........
assuming youre correct......
the deal is still on.........
and the bid share price cant be affected as this is not new news for amba...... suspect it will be a tax issue......imho

still can tunderstand why residual stock ant being snapped up at around 64p.......its almost a guranteed 10%....

[deniscaff] 16/12/2006 16:01

I hear the hold up is to do with the pension deficit and how to address it, an announcement is expected before the Christmas holidays. Don't shoot the messenger if it proves to be incorrect but It came from a good inside source.

Cheers

[deniscaff] 14/12/2006 13:35

lord r

Unfortunately not, I've left most of my investments in the dairy industry as I realised a couple of years ago that it was in for a period of stability after years of restructuring left it with just three main players , I figured that two out of the three would always do o.k at the expence of the other one depending on how the major retailors moved their volume about, It's paid of so far with RWD and Dairy Crest at record high share price levels and paying good dividends, Arla going for anywhere near 75p would be the icing on the cake as my weighted ave is 42p.

Cheers

[gerry321] 14/12/2006 11:10

Does anyone have a reason to think the bid announcement might be delayed into Jan ??

[lord r] 13/12/2006 17:38

Denis

Safe journey back.Did you ever get any of those Business Post Group shares i mentioned a while back?

[deniscaff] 12/12/2006 16:58

Good Afternoon damofarl ( still just about morning here ) Agreed !!

[damofarl] 12/12/2006 15:13

Afternoon, deniscaff/lord r; r,e,388/389. the whole is greater than the sum of the (posters') parts! D.

[deniscaff] 12/12/2006 14:43

lord r

While singing the praise's of contributors to the board I should mention tiredoldbroker who for me is always "spot on"

Cheers

[deniscaff] 12/12/2006 13:42

lord r

Nice to hear from you I have been in Florida since October on business but am about to return today,I haven't posted much since the announcement leaving it to the more technical minded and capable Gerry,Que and damo, I was informed from the inside on the day of the announcement that talks were expected to go on until the end of the year , RWD and Dairy Cest must be laughing their socks off as their share price goes to record levels as Arla take thir eye of the ball, I've no idea what the final offer will be but the institutions and the milk partnership appear to be in no hurry to take the money and run,I'll be disappointed with less than 80p but I've been disappointed many times before !!!

[lord r] 11/12/2006 17:30

Denis

Hi, how are you doing? Finally got my computer fixed after many months & am catching up on all the action?

Pleased that ARU finally seems to be getting somewhere.

Are you in the UK for Christmas or r u enjoying warmer climes?

All the best.

[gerry321] 07/12/2006 12:31

Que/Damo
Thanks very much for info......
......re todays big trades........presumably these are from one big holder to another big holder as there is no impact on the share price surely if not Amvescape these are being moved around by amba friends to stay under 0.99%..........and avoid an rns........?