At last, the first sign of an auction for control of National Foods as the slow thinking New Zealand dairy giant Fonterra today upped its offer to $6.00 and promised another $20c on top of that if it gets to the 90% acceptance level

Check out this story from the SMH website on the bid and the standard response from the other bidder, San Miguel, which says its reviewing its position. San Miguel’s offer is currently worth $5.90, after being pitched at $6 a share. The offer price has been reduced by the National Foods interim dividend that was paid after the board revealed a downturn in earnings.

Fonterra has 19% of National Foods and San Miguel has around one per cent, even though its offer has not gone out to shareholders yet.The Fonterra offer resembles in part the tactics used by Woolworths to win control of Australian Leisure and Hospitality. A bit now and more later if acceptances reach a certain level.

Fonterra is now also offering redeemable preference shares instead of just cash, which could tempt some small shareholders into taking the paper and perhaps limiting capital gains tax.Check out the statement here. They can take a mixture of cash and preference shares.

Fonterra has dropped all conditions other than the minimum acceptance condition of 50%. The National Foods board will be relieved now that there’s a higher price from the Kiwis.

Fonterra has taken ages to make its mind up to lift the offer price to where it tops San Miguel. Fonterra is a listed co-operative based in New Zealand and there has already been a fair bit of debate from farmer members about a higher price for National Foods, reducing returns to the members. San Miguel could go for a quick response that easily tops Fonterra’s possible $6.20 to make it much harder for the farmer members of Fonterra to wear.

Crikey has already observed how that are throwing shareholders money around on the defence, like so many other companies (ALH paid $44.9 million to force Woolies to pay an extra $479 million).

So far the $14 million spent on the defence up to the end of 2004 and how many more millions have been splurged in the following 11 weeks, have shifted the offer price from $5.45 to $6.00 and possibly $6.20.

However, National Foods looks like it will now pay San Miguel a $17.8 million break fee as punishment for backing a rival bid. This probably doubled National Foods’ defence costs against a company that looks set to wind up taking it over.

It’s probably fair to say that by the time its all over National Foods will have spent nearly half last years after-tax profit on defence costs this year – $30 million of $68 million. Those Kiwi farmers won’t be too happy about that – especially the big whack being shipped off to the Philippines.

The sharemarket believes there might by another bid from San Miguel and the National Foods share price rose 12c Wednesday morning to $6.35 at lunch, a dollar above Fonterra’s opening salvo.