Is Louis Dreyfus' $105m Namoi Cotton takeover bid too cheap?

However, the non-binding 51 cents a share offer, which could see Louis Dreyfus pay about $105 million and absorb Namoi's debt, is far too cheap for Australia's biggest portfolio of ginning assets according to others.

Chairman, Tim Watson, who took over daily management of the 61-year-old processing and marketing business mid-year, agreed the cost of replacing the company's 10 gins alone would be "way more expensive" than the money LDC had bid.

Based on current industry trends, replacing just one four-stand cotton gin and associated infrastructure could be around $50m.

Namoi is currently in partnership with Ord River growers building the Kimberley Cotton Company gin in remote Kununurra at a cost of about $65m.

"You have to look at the age and earning capability of the assets," Mr Watson said.

"If somebody buys them, no matter how big their own business may be, a buyer must be able to get a return on their investment.

"Cotton gins only run for about three months each year - it's not like they're a widget factory churning out products 52 weeks a year."

It was also "seriously important" that investors could provide the financial and geographic support to "play the long game" and withstand drought years like the nasty 2019 and 2020 seasons which shut down half the gins in Australia and left Namoi's books in the red.

Louis Dreyfus already owns 17 per cent of the pioneering cotton processing business and is Namoi's marketing and commodity logistics partner.

Namoi's footprint, from Goondiwindi on the NSW-Queensland border to Hillston in the Riverina, would neatly complement LDC's Queensland ginning operations at Dalby and Emerald, and Moree in NSW, acquired from Dunavant Enterprises in 2010.

LDC is also closely aligned with the new two-stand gin just opened in the Northern Territory near Katherine, where it provided construction consulting services.

Mr Watson noted Louis Dreyfus had a 100-year agricultural commodity marketing record in Australia, including its lengthy commitment to cotton market competition and working with Namoi.

"The talk in the industry, for a while now, was that Louis Dreyfus could have a bigger role at Namoi," he said.

LDC's eventual takeover move followed recommendations from an independent strategic review into Namoi's growth and capital investment options, including potential partnerships.

The multinational's name featured prominently.

Mr Watson insisted the process was wide open and Dreyfus was not the only option, but his board had exhausted the alternatives, to date.

Feedback to him from within the industry since the bid was revealed in late November was generally very supportive, although there was still "a lot of water to go under the bridge, and who knows what might come up".

While directors and Namoi's biggest shareholder, Samuel Terry Asset Management, fully supported what they considered was already a good deal, it could take until May or June to go through.

LDC is currently examining Namoi's books, which will be followed by an independent assessment of the bid and the auditor's recommendation to shareholders.

Approval will be required from federal competition and foreign investment regulators before an extraordinary general meeting vote by April or May which would need 75pc shareholder support for the sale.

Among those not happy with the offer, at this stage, was immediate past chairman for 25 years, Stuart Boydell.

"It's nowhere near enough, in my opinion, and I know others share my concerns," he said.

Given Namoi recently declared its first dividend in several years after posting a 45pc jump in pre-tax half-year profit to $16.8m, and was well positioned to gain from another two potentially big harvest seasons, he felt LDC would get "more than just a great deal" from the takeover.

"It's a gift," he said.

"I appreciate Namoi is a public company and this sort of thing can happen, but if you look at its replacement value - including all its other infrastructure and warehouse sheds - $100m is well below what they should be offering.

"The gins aren't necessarily new, but they're almost rebuilt every year."

The new Kunnunura gin venture and Namoi's operational efficiency gains of late indicated it was not sitting on its hands.

"Double the price might be closer to the money," Mr Boydell said.

However, he noted cotton ginning costs, particularly energy and labour, were squeezing operators everywhere, with the shortage of skilled gin staff a particularly common challenge.

He understood why Sydney-based investment group, Samuel Terry Asset Management, wanted to take its profit and move on.

"If they bought in at 31c, I'm not surprised they'd support the board's decision to sell," he said.

However, Mr Watson described STAM as "a fairly patient investor", for the past seven years, and particularly supportive of late.

STAM had backed Namoi's 2022-23 $14m capital raising to prune debt and return gearing to pre-drought levels.

"We have to be conscious that every shareholder needs to receive capital growth, either in the value of their investment and, or, dividend returns," he said.

"They'll want something in return for giving you their money."