What: After a busy month of half year results being reported by companies, it's unlikely that there were many investors watching their screens at 6:01 pm on Friday night when walnut and brown onion producer Webster Limited (ASX: WBA) announced a takeover bid for cotton producer Tandou Limited (ASX: TAN).
So what: According to the release, Tandou's board has entered into a 'Merger Implementation Agreement' and is recommending shareholders accept the takeover offer which would result in the creation of a large diversified agri-business.
The details of the bid by Webster for 100% of Tandou see the company offering 1 Webster share for every 2.25 Tandou shares. Based on the closing prices on Friday (pre-announcement) this offer equates to 58 cents per Tandou share, representing a total value of $114 million and a premium of 22% to Tandou's closing price of 47.5 cents.
Interestingly, the offer to acquire Tandou isn't the only acquisition Webster is looking to undertake. In conjunction with the Tandou offer, Webster is looking to also acquire the unlisted Bengerang Limited for $124 million. Bengerang is a large cotton farming operation with 50,000 ML of water entitlements.
Now what: Webster obviously sees some advantages in bulking up. Should both proposed acquisitions complete, the group will be transformed into a diversified agribusiness with significant water entitlements and a potential capitalisation of over $400 million.
The agricultural sector seems ripe for further consolidation given the benefits that economies of scale can have for businesses exposed to primary production. Webster's move could quite possibly set off a round of merger and acquisition (M&A) activity. Other companies that could find themselves at the forefront of M&A activity could include Australian Agricultural Company Ltd (ASX: AAC) and Graincorp Ltd (ASX: GNC) which have exposure to high protein sources which are in high demand throughout Asia.