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Namoi's funding boost

24 Jan, 2013 03:00 AM
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US commodity, energy and financial goliath Louis Dreyfus is expected to receive solid local support for a 13 per cent purchase of Namoi Cotton next month.

Despite the multinational player already being a major competitor in the local cotton market its financial input and trading expertise are being warmly welcomed by Namoi bosses.

Grower shareholders, who own almost 70 per cent of Namoi, also welcomed the news as its Australian Securities Exchange price leapt more than 25pc to almost 31 cents late last week.

Within the next two weeks Namoi shareholders will receive voting papers and full details of the plan which proposes to embed Dreyfus as a cornerstone investor and marketing partner - just in time to help bankroll the grower-owned firm's cotton trades this season.

It ends a 16-month search for an outside investor to assist Namoi's financial woes after being savaged by extreme global price volatility two seasons ago and blowing its debts out to $121 million.

An earlier cornerstone partnership initiative with the Chinese-based National Cotton Group Corporation was abandoned a year ago.

"We're confident of a very positive outcome from the ballot - it's a very positive result for shareholders and growers," said Namoi chief executive officer Jeremy Callachor.

"We will be a lot more competitive and active in the market."

The proposal, which needs 75pc shareholder support, involves Louis Dreyfus paying $30.4m for a 49pc stake in a joint venture marketing operation, Namoi Cotton Alliance, and a further $3.7m for 14.3m new shares in the over-arching Namoi business.

The cash will be used to further cut debt towards a $60m target by February.

A Louis Dreyfus Commodities representative will also become one of the seven board directors of Namoi, which this year marks its 50th anniversary after forming as a farmer co-operative when the fledgling cotton industry's first crops were planted in northern NSW in 1962.

The marketing alliance will to take control of Namoi's cotton trading and grain and cotton seed container packing operations in NSW and Queensland using the multi-national's broad experience to improve its competitiveness in the market.

Last season Namoi's unstable financial health saw its long-established trading business shrink to handle just 15pc of the crop, with related activities such as grain trading phased out in recent years.

But it continues to be a big ginning business, handling 30pc of the record 2011-12 crop where the last of the pick is being processed in southern NSW at Hillston until late February.

Louis Dreyfus, already a prominent global cotton business in its own right, has had past ties to Queensland Cotton and since 2010 has owned merchant arm of the former Dunavant Enterprises business.

Its Australian commodities CEO Robert Green said the alliance would give the giant strong ties to cotton infrastructure and logistics operations in Australia.

The company, Australia's third largest cotton merchant behind QC and Namoi and also a local grain handler and trader for 90 years, wanted to engage more closely with cotton growers as part of longer term growth and marketing goals.

However Mr Green emphasised Louis Dreyfus' own cotton origination, warehousing and logistics business would continue to trade independently of Namoi and would not share its trading activities with its competitor despite the joint venture ownership relationship.

Mr Callachor said Louis Dreyfus strategic investment in the well developed Namoi business would add a valuable layer of financial capacity, global marketing expertise and risk management skills to the business.

Company chairman Stuart Boydell said there was nothing to prevent the global giant from later expanding its stake in Namoi and potentially acquiring a majority shareholding, but that did not appear to be its investment motive.

He said feedback from grower shareholders, who would continue to veto all appointments to the board through their Namoi Cotton Co-operative, was supportive of the alliance and the share allocation.

"Shareholder meetings will be held to air any queries, but in general I think most people are very happy," he said.

What's Louis Dreyfus do?

  • Founded in 1851 as a grain buyer in Alsace on the German-French-Swiss border
  • By 1900 Dreyfus offices were spread across Europe, North and South America, Algeria, South Africa, India, China and Russia
  • Melbourne office opened in 1913
  • Global head office moved to New York in 1914
  • Trades cereals, oilseeds, rice, sugar, rubber, ethanol, coffee and cotton and processes citrus, oilseeds and sugar
  • Active in ocean freight, metals and financial trading
  • Has cotton/grain handling facilities at Dalby (Qld) and Moree, Narrabri and Newcastle (NSW)
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    READER COMMENTS

    jockyboy
    24/01/2013 3:04:04 AM

    Dreyfus is a (very) private entity...definately no listed!
    Jock Munro
    24/01/2013 8:30:12 PM

    Grower members would be very short sighted indeed if they allow Dreyfus to make a partial takeover. Look what happened to AWB Ltd when growers voted away their control. Rice Growers ignored the spin and escaped a Spanish Edbro takeover. Sunrice's so called debt problems virtually vanished at the next harvest and the company continues to go from strength to strength under the grower structure.

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