Webster's big splash: a Tandou takeover

If successful, the deal will see the historic Tasmanian group own Australia's largest water entitlement portfolio of more than 235,000 megalitres along with more than 40,000 hectares of irrigated cotton country. The water portfolio alone is estimated to be worth almost $300 million.

Webster - which has ports and logistics businessman Chris Corrigan as a shareholder and director on the board - has offered $124m to acquire Bengerang Limited. Leading northern NSW grain and cotton grower David Robinson's Australian Food and Fibre has a key ownership stake in Bengerang, which has large-scale cotton farming activities around Moree and Bourke.

A merger offer from Webster for Tandou Limited values the farming and water trading business at $114m. The bid involves swapping one Webster share for every 2.25 Tandou shares, representing a 10.5 cents a share premium (at 58c/share) on the company's closing share price on Friday afternoon of 47.5c.

The Devonport-based Webster group currently has a capitalisation value of $200m, with 2200ha of managed walnut orchards in southern NSW and Tasmania.

Tandou established lakebed farming operations near Menindee in the 1970s and moved into irrigated cropping at Hay in the past three years. It also operates 122,000ha of rangeland grazing operations at Menindee and Ivanhoe producing organic lamb.

Bengerang includes a 8177ha farming aggregation at Garah, north-west of Moree, comprising of five properties; 1684ha over two properties on Queensland's Darling Downs, and is in the process of acquiring the Buster family's 15,000ha Darling Farms operation at Bourke, which it currently leases.

Late last year Webster paid $117m for the "Kooba" agregation of properties on the Murrumbidgee River at Darlington Point, including 11,800ha of irrigated country, about 9100ha of dryland crop area and 25,800ha of pastoral land.

Tandou chairman Rob Woolley said the "Kooba" operation would complement Tandou's relatively nearby Hay aggregation, providing the joint business with "substantial development opportunities" and a large, strategic portfolio of water entitlements.

Confirmation of the takeover offer came soon after Tandou reported a 96 per cent profit crash to just $101,000 for the six months to December 31.

The company's farming segment earnings before interest, tax and depreciation lost $2.48m as water reserves in the lake system dried up.

Unless an alternative counter offer is received, Tandou's directors have recommended shareholders accept the offer from Webster, Australia's fourth oldest company.

Webster's asset base would more than double on the successful completion of both deals. The consecutive acquisitions would also give Webster a lower debt gearing and the opportunity to better exploit balance sheet efficiencies.

The company has, however, made a point of assuring its shareholders it retains a strong commitment to horticultural tree crops and would continue its measured growth in walnuts, planning to complete the development of its new 900ha "Avondale West" orchard near Griffith next year.

It was also exploring further expansion into walnuts and other horticulture ventures at "Kooba" and other locations.

Mr Woolley said the advantages of grouping Tandou's properties and water resources with Webster operations would bring diversity scale and cost management to the venture, all of which were expected to be positive for his company's shareholders.

He was mindful Tandou shares had traded at about a 30pc discount to the real value of the company's farming assets for some years.

"Because of Tandou's relatively small size and its lack of geographic and product diversity it is difficult to compete for and fund the acquisition of larger agribusiness assets in a highly capital intensive industry," he said.

"It has proven difficult for Tandou to achieve real scale and generate the substantial growth in earnings required to build shareholder value."

The Mildura-headquartered farming company's half year results reported a 7pc rise in revenue to $40.2m and a pre-tax profit of almost $300,000. It forecast its pre-tax profits for the full year would be in the range of $3m to $5m.

Tandou managing director Guy Kingwill said due to the timing of the company's current cotton crop costs and revenue, a large portion of the projected profit from the 2015 crop would not be recognised until the later part of the financial year.

Reduced flows in the Darling River and Menindee Lakes system storages resulted in Tandou's total 7000ha cotton area for 2015 consisting of only about half the area planted on Tandou Farm in 2014, while no cereal crop was harvested at Menindee in 2014.

Projected earnings for the second half would be heavily dependent on this year's increased cotton area at Hay.

Webster shares closed on a rising trend at $1.33 on Friday before the acquisition plans were announced.