Squeeze out 6 more cents without much competition - gem or more problems... only time will tell
Goodman Fielder suitors seal takeover deal
JOHN DURIE AND RICHARD GLUYAS THE AUSTRALIAN MAY 16, 2014 5:04PM
GOODMAN Fielder suitors Wilmar and First Pacific will pay 71c a share for control of the food company with the inclusion of a 1c dividend to their offer.
The deal was approved in principle this morning and the rest of the day was involved in sorting through the due diligence and other issues.
The bidding team will have four weeks of due diligence before the deal is formally out to shareholders and a string of other conditions have also been dropped, including debt levels.
The $1.4 billion equity offer should bring to an end a troubled nine-year run on the public bourse after being sold by New Zealand billionaire Graeme Hart in 2005.
Mr Hart sold the key assets such as Uncle Toby’s and included his own dairy business in the company which was refloated in 2005.
The bidders plan to keep the assets and use their own platforms to boost its Asian sales.
Goodman Fielder, which owns the Helga’s, MeadowLea, Vogel’s and Olive Grove brands, recently rejected a $1.27 billion takeover offer from Singapore-based agribusiness Wilmar International and Hong Kong’s First Pacific Company.
It is understood the revised bid is high enough to extract acceptances for 5 per cent holdings from Perpetual and Ellerston Capital, which respectively own 12.2 per cent and 13 per cent of the target.
Wilmar already owns 10.1 per cent of Goodman, enabling the bidders to lift their combined stake to 20 per cent.
The bid, however, remains conditional on the Foreign Investment Review Board’s backing for Wilmar and First Pacific to lift their holding above 15 per cent.
Last month, Goodman became the latest food industry takeover target, with Wilmar and First Pacific lodging a non-binding, conditional proposal at 65c a share, capitalising the company at $1.27bn.
The move came soon after a veiled warning by Goodman chief Chris Delany at The Australian’s Global Food Forum, when he noted that “more and more and more of the ownership of the food manufacturing assets have moved into multinational hands’’.
He said that while he had spent a good part of his career at multinationals “so I don’t think that’s a bad thing’’, he noted one of the outcomes was “more and more ... research and development and technical functions have moved offshore’’.
The Goodman board has previously opposed the overtures, saying the suitors were being “opportunistic” and undervaluing the company.
However, it signalled its willingness to negotiate by appointing Credit Suisse as its adviser, with UBS and Bank of America Merrill Lynch acting for the bidders.
The April 28 proposal came only weeks after Goodman’s fourth earnings downgrade since 2011.
After $700 million in write-offs over the past three years, the company flagged further possible writedowns, sending Goodman’s shares plummeting as much as 20 per cent to a 19-month low of 47.5c.
Goodman has long been seen as a likely takeover target, more so now given the strategic value of Australian food businesses as the Asian middle class continues to grow.
The $500m-plus takeover of Warrnambool Cheese & Butter by Canadian dairy giant Saputo was the most recent example.
Goodman Fielder suitors to pursue regional expansion
RICHARD GLUYAS THE AUSTRALIAN MAY 19, 2014 12:00AM
THE Asian bidders for Goodman Fielder plan to keep the business intact and pursue regional growth rather than seek a quick profit from a break-up.
Having won a board recommendation on Friday for their sweetened offer, Singapore oils trader Wilmar International and Hong Kong investment house First Pacific are banking on a turnaround of the nation’s biggest baker, after it reported large asset writedowns and four earnings downgrades since 2011.
Wilmar and First Pacific are understood to favour significant investment in the Goodman business, as part of a long-awaited turnaround.
The proposed $1.39 billion scheme of arrangement, which equates to 71c a share, including a 1c dividend, is considered highly unlikely to encounter any resistance from the Foreign Investment Review Board.
Wilmar, a 10 per cent Goodman shareholder, cleared the FIRB hurdle in 2010 when it spent $1.75bn on the acquisition of Sucrogen from CSR.
Goodman, moreover, is not in the same category as GrainCorp, with Joe Hockey rejecting last year’s $3.4bn bid by Archer Daniels Midland’s for the grain handler on the grounds that a foreign buyer would be taking over an “effective monopoly”.
Wilmar and First Pacific employed “bear hug” tactics against Goodman by issuing an 8pm deadline last Friday for a unanimous recommendation from the target’s board.
The bidders struck agreements with Goodman’s two largest shareholders — Perpetual and Ellerston Capital, each with 12 per cent stakes — to acquire 4.8 per cent of the target at 70c a share, conditional on the board meeting its deadline. The share purchase agreements also enabled Wilmar and First Pacific to acquire an additional 5 per cent, taking their combined holding to almost 20 per cent, subject to the same condition and FIRB approval.
The agreements with Perpetual and Ellerston are believed to be a first in local takeovers.
They go a step further than the pre-bid agreements struck with shareholders in the Spotless takeover, and ensured that Perpetual and Ellerston had a clear interest in a successful outcome.
There was also a clear message that Wilmar and First Pacific would not tolerate any further delays, after several weeks of no contact with the Goodman board or its advisers.
It is understood that representatives from the two Asian companies flew into Australia on Thursday morning and would have left on Friday night, regardless of the outcome.
“They weren’t bluffing,” a source close to the transaction said.
The scheme meeting is likely to take place within three to four months.
In the absence of another bidder, success is highly likely, with the improved terms equating to a 33 per cent premium to Goodman’s closing price of 52.5c on April 23.
A sample of eight brokers has a 57c-a-share average target price for the company and a 54c-a-share valuation.
The revised offer price also implies an enterprise multiple (enterprise value divided by earnings before interest, tax, depreciation and amortisation) of 8.6, which is ahead of other recent transactions in the sector.
They include 4.9 for last year’s purchase by TPG of Ingham Enterprises, the country’s largest integrated poultry company, and 5.5 for Goodman’s sale of Integro Foods in 2012.
Goodman buyers have their work cut out for them
JOHN DURIE THE AUSTRALIAN MAY 19, 2014 1:38PM
AS the Goodman Fielder victors work their way through the company’s books the question from the outside remains; why did they bother to pay close to $2 billion for a company that almost from the day of its listing has appeared to be missing in action.
Goodman’s managers did the best they could from a collection of businesses that, put simply, their vendor Graeme Hart couldn’t sell at a higher price than the $2 a share float price in 2005.
Ironically, one of the businesses Chris Delaney sold two years ago was the Integro Oils operation to GrainCorp which was in the process of establishing a downstream oils business through the purchase of oil seed crusher Gardiner Smith.
The Integro sale for $170 million was at 5.5 times earnings before interest, tax, depreciation and amortisation, which compares with the 8.6 times being paid for Goodman.
ADM, which was knocked back in its attempt to buy GrainCorp, is a big shareholder in Wilmar, which is a big player in the oils market as well as being the biggest in palm oil. With the benefit of hindsight, if Delaney had kept the oils business he would have got more this time around.
The government’s rejection of the ADM-Graincorp deal was purely political, giving the National Party some crumbs, but the same won’t happen here so ADM emerge on the buying team even after Treasurer Joe Hockey has questioned its operating style.
Last Friday morning the Goodman board agreed in principle to the takeover but spent the rest of the day working through the mechanics before formally accepting the offer after the market closed. The stock traded all day not knowing the result.
The bidding A-team arrived in Australia on Thursday with Wilmar led by in-house lawyer La-Mei Teo and First Pacific by Robin Nicholson, with both threatening to leave the next day of there was no news by 8 pom on Friday. UBS and Merrill Lynch advised the bidders, with CSFB advising Goodman.
Assuming the deal proceeds after four weeks of due diligence and the formal scheme of arrangement, the first logical move would be to add the head office functions to the CSR sugar business Wilmar acquired four years ago for $1.8 billion.
The bread business is considered a good cash generator but could do with big plant upgrades.
On paper Wilmar would be a better bargainer with the supermarkets given its increased clout but then again, Kirin has not proved to be too successful when you consider it is the single biggest supermarket supplier and its milk business has been taken to the cleaners.
Wilmar’s Robert Kuok likes buying food brands and with Meadow Lea and Praise he has picked some good ones that he can add to his bases in Malaysia and China.
First Pacific’s strengths are in Indonesia and the Philippines.
The New Zealand dairy business is mainly a market milk operation with a small UHT presence that can be exported but the present focus is domestic.
While splitting the assets between the two bidders may seem logical, they maintain that that simply won’t happen and if First Pacific wants out then Kuok will buy them out.
At 71 cents a share the bidders have a business they think they can run better and more efficiently and at this price they probably have limited downside. If they were to walk after the due diligence, however, the downside will be massive.
PUBLISHED MAY 20, 2014
HOCK LOCK SIEW
Diversification may be Wilmar's trump card
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT
Wilmar's first-quarter net pro-fit tumbled 49 per cent to US$161.8 million, while revenue was little changed at US$10.3 billion - PHOTO: BLOOMBERG
WHAT had seemed like a ghost of the past has come back to haunt Wilmar International.
After six consecutive quarters of profits in its oilseeds division, its recently released first-quarter results showing negative margins for its soybean processing operations have yet again stunned the market, causing its share price to slide as much as 5.4 per cent to $3.16 amid a few downgrades by analysts. The stock recovered slightly yesterday to end at $3.23.
Wilmar's first-quarter net pro-fit tumbled 49 per cent to US$161.8 million, while revenue was little changed at US$10.3 billion.
Its oilseeds and grains division recorded a pre-tax loss of US$57.4 million, compared with a profit of US$47.2 million a year ago, no thanks to the negative crush margins in China - a stark contrast to the preceding quarter, when it recorded its best quarterly performance in 2013 due to strong meal demand and tight soybean supplies.
This was compounded by worsening palm oil refining margins and a worse-than-expected performance in its sugar business that was seasonally weak. A strong performance by its plantations division and its consumer products segment only partially cushioned the impact on the bottom line.
Wilmar crushes soybeans and other oilseeds such as rapeseed and sunflower seed into protein meal and crude oils, selling them to animal feed producers and to its own consumer products division respectively.
In China, where Wilmar is a market leader with 56 crushing plants, the soybean processing sector has suffered from overcapacity in recent years.
Soybean processors have also been troubled by financial speculators, who in 2008 started importing soybeans and metals such as copper as a roundabout way to secure cheap financing for investment in stocks or real estate. Analysts blame them for having added extra volatility to the sector.
They were the culprits behind the latest shock, said Wilmar. Its CEO Kuok Khoon Hong explained in its post-results briefing that these financial speculators had imported more soybeans as a result of good crush margins in the previous quarter.
China's soybean imports jumped a record 33.5 per cent in the first quarter, Reuters earlier reported.
The excess supply of soybeans met with reduced demand because of the bird flu and a slower Chinese economy.
Nevertheless, with the resul-tant collapse in crush margins having caused some of these speculators to have problems in obtaining letters of credit from banks now, Wilmar expects the situation to improve in the next quarter. Crush margins, however, will still be negative, expected to turn up only from the third quarter onwards.
There is a silver lining that analysts see in the situation this time, as compared to 2012 when negative crush margins also dragged down Wilmar's earnings for two quarters.
"Chinese-bound shipments are now seeing defaults, while in 2012 speculation continued to soar as oilseeds became China's speculative/grey finance trade," said Citi analyst Patrick Yau, adding that the industry should normalise in the later part of 2014.
The problem of the financial speculators, therefore, could abate in a few quarters.
But the structural overcapacity - only about half of all capacity is currently being used, according to estimates - will take far more time to resolve.
Macquarie analyst Conrad Werner estimates that it will take about five years for utilisation rates to return to the 70 per cent levels previously seen in 2008.
"That's not a long time in the context of Wilmar and the way they look at the business, but what it means for investors looking at 6-12 months is that it implies we will continue to have volatility over the period as well," he said.
To be fair, the problem is industry-wide and has also affected other companies such as Golden Agri-Resources and Noble Group.
For them, however, the oilseeds business in China forms a smaller part of their earnings.
With the oilseed crush situation remaining challenging, as well as its Australian sugar business being mature and Indonesian palm refining margins coming down structurally, Nomura analyst Tanuj Shori believes that Wilmar would find it difficult to grow by double digits in its current businesses.
Others are more optimistic, given how Wilmar's exposure to the oilseeds division has come down since 2011 as it fired up other engines of growth.
While the oilseeds segment contributed 20 per cent to profit before tax in 2011, this has since dropped to 13 per cent last year, noted Citi's Mr Yau.
Meanwhile, Wilmar is busy expanding on other fronts such as the fast-growing rice and flour businesses, making its earnings more diversified. It has also been actively picking up sugar assets such as Shree Renuka Sugars and downstream businesses like the recent offer for Goodman Fielder, and also plans to expand its range of processed palm oil products such as biodiesel and oleochemicals.
Should it be able to ramp up these businesses quickly, the oilseeds problem might not matter all that much in future - it could be a ghost exorcised once and for all.
Sugar giant Wilmar caned for export opt-out
SUE NEALES THE AUSTRALIAN MAY 23, 2014 12:00AM
AUSTRALIAN canegrowers are outraged by Singapore-based agribusiness and food giant Wilmar’s decision to withdraw all sugar processed in its eight Queensland mills from the collective export marketing pool, Queensland Sugar Limited, within the next three years.
Wilmar instead plans to market its two million tonnes of raw sugar — nearly half of Australia’s annual production — directly through its own international trading arm, which currently sells five million tonnes of sugar globally each year.
The withdrawal by Wilmar, Australia’s biggest sugar processor, will break the link of the past 102 years that has seen Australian canegrowers guaranteed two-thirds of the profits from all sugar sold through QSL’s virtual central desk, which currently markets 90 per cent of Australia’s 3.2 million tonnes of export sugar on behalf of growers and processors.
Wilmar claims its decision to go it alone in marketing its own sugar instead of using QSL will deliver higher returns and profits to its 1500 canegrowers, because it can better leverage its global market power and sugar marketing expertise to secure higher sugar prices than QSL can.
At angry meetings across central and north Queensland in the past three days, canegrowers have unanimously rejected Wilmar’s non-negotiable move to cease selling its sugar via QSL from 2017.
They fear that the loss of Wilmar’s two million tonnes of sugar from the QSL system — about 60 per cent of export sales — will leave the collaborative export body a mere shell of its former self, with none of the marketing power it enjoys now as the seller of 90 per cent of Australia’s $2 billion raw sugar output.
Wilmar general manager of marketing David Burgess told The Australian last night that the company would not be budged from its decision to leave the QSL export marketing mechanism.
“It’s an outdated model; as a single desk it had a very important role 15 to 20 years ago, but now QSL has become less dominant globally, it has become a price-taker, not a price-maker,” Mr Burgess said.
“And we are not proposing to break the nexus between farm cane prices and world sugar prices or take the exposure of canegrowers to world markets away.”
The dominant organisation representing growers, the Canegrowers Association, is not convinced.
After Wilmar announced its decision this week, the association wrote to the Australian Competition and Consumer Commission chief Rod Sims, expressing its concern that growers would be deprived of the benefits of true competitive pricing if Wilmar took advantage of its regional sugar milling monopolies and its global dominance.
Wilmar Sugar operates eight sugar mills, including Australia’s two biggest near Ingham and Ayr.
Canegrowers’ chief economist Warren Males said: “We are concerned growers are being denied the choice they have now about how their sugar is priced and sold.
“The real issues are around transparency. Wilmar International is a very vertically integrated company with its own processing, shipping, trading and marketing arms. All its Australian sugar will be sold to its trading house and we ask how the grower will ever be able to tell what real price their sugar is selling for on world markets.”
Mr Males said the Foreign Investment Review Board might also be interested in Wilmar’s decision to abandon QSL.
When FIRB approved Wilmar’s purchase of Sucrogen and its seven mills from CSR in 2010 for $1.75 billion, the company said that “at the current time”, it didn’t intend to leave the QSL system. Mr Males believes this “undertaking” was fundamental to FIRB’s green light for the takeover.
Mr Burgess said that statement was made four years ago, had never been a guarantee, and that he did not believe FIRB would be concerned.
He said Wilmar Sugar had also conferred with the ACCC this week.
Nationals sour over sugar sales
THE AUSTRALIAN JUNE 07, 2014 12:00AM
Michael McKenna
Reporter
Brisbane
Sue Neales
Reporter - Rural/Regional Affairs
DEBATE over Australia selling off the farm to foreigners has erupted, with federal Nationals and the Newman government pushing to overturn an Asian food giant’s dumping of a century-old deal to export Queensland sugar.
Singapore-based conglomerate Wilmar — which produces almost half of Australia’s raw sugar in its eight Queensland mills — is planning to sell the sugar through its own trading arm despite canegrowers wanting to stick with the collective marketing pool, Queensland Sugar Limited.
The move to go it alone — despite Wilmar’s assurances it would stay with QSL when it bought the mills in 2010 — has sparked an unprecedented complaint by the state government of anti-competitive behaviour and a push for federal intervention led by Queensland Nationals senator Barry O’Sullivan.
Since 1912, Australian canegrowers have been guaranteed two-thirds of the profits from all sugar sold through QSL’s deregulated but virtual central desk, which sells about 90 per cent of Australia’s 3.2 million tonnes of export sugar.
Senator O’Sullivan said Wilmar’s decision to abandon QSL and take 60 per cent of its sugar volume would “damage or destroy’’ the centralised marketing system and QSL, potentially putting hundreds of canegrowers, who operate on small margins, out of business.
“This is a like a gorilla stomping through canefields of Queensland,’’ he said. “We need foreign investment in Australian agriculture. But when a decision by a foreign company has such an adverse effect across an entire sector, then we have a big problem ... it’s not in our national interest.’’
The 1500 canegrowers who rely on Wilmar to crush their crop in the Burdekin and Herbert regions north and south of Townsville have almost unanimously opposed the changes despite Wilmar claiming it would secure them higher prices than QSL.
Queensland Agriculture Minister John McVeigh has complained to the Australian Competition & Consumer Commission about Wilmar’s decision and written to the company’s chairman, Kuok Khoon Hong, calling for the miller to stick with QSL.
“The current approach of marketing through QSL allows for the benefits of economies of scale to be enjoyed by all industry participants,,’’ Dr McVeigh said.
“A reduction in QSL’s tonnage will diminish the choice of pricing pools available to smaller mills and growers.
“I am concerned this will dilute returns to ongoing members of QSL and our cane farmers.’’
Federal Agriculture Minister and Nationals deputy leader Barnaby Joyce said last night that he feared the Wilmar move would lead to lower prices for growers.
He said he supported central or single-desk marketing of bulk commodities such as wheat or rice, and could perceive no good reason — unless it guaranteed better returns to growers — to not maintain QSL’s strategic marketing advantages.
“If Wilmar removing its sugar from QSL means a lesser return to farmers — and that’s what I’m inclined to believe it will — I don’t believe it should happen,” Senator Joyce said.
But he added there was not much the federal government could do to stop Wilmar, short of legislating for a return to a compulsory central selling system.
QSL chief executive Greg Beashel said yesterday that as the political furore grew over the Wilmar move, he became more convinced a “negotiated outcome” was the best result for all concerned. Mr Beashel wants the 1600 growers who sell their cane to Wilmar’s mills to have a choice whether they sell their sugar through QSL or Wilmar.
But Wilmar Sugar’s general manager of marketing David Burgess said last night he had heard no mention of that compromise solution from QSL since Wilmar announced in early May that from 2017 it would sell all of its 2.2 million tonnes of sugar itself.
“This has been a major decision and we knew it would create community angst,” Mr Burgess said.
“But Australia is supposed to have a voluntary deregulated marketing system for sugar, and Wilmar is simply exercising its right to leave that (central QSL) system if its wishes to.”
Thanks,
Good news if they really can fight off the protectionism this time round
Goodman Fielder to expand NZ milk plant
AAP JUNE 13, 2014 12:00AM
FOOD group Goodman Fielder is pushing ahead with plans to spend $NZ27 million ($24.9m) to expand its Christchurch ultra heat treated milk plant, despite a $1.37 billion takeover offer from Singapore food giant Wilmar International and private equity firm First Pacific.
Goodman Fielder said the expansion would give it additional capacity to meet increased demand for its Meadow Fresh brand in Asia.
Work to extend the existing UHT building and install a new pasteurising, sterilising and palletising line as well as a new 250ml high-speed filler is expected to be completed by October next year, Goodman Fielder said.
The work will boost production at the site by 50 per cent, enabling it to process an extra 32 million litres a year.
“The premium UHT category in Asia-Pacific is anticipated to grow by around 50 per cent over the next five years,” chief executive Chris Delaney said. “We are investing now to meet that demand and plan for future growth.”
Construction of the building and production line will require 40 full-time equivalent roles for the eight-month construction period. The increased production will also require 12 new roles.
Goodman Fielder would be a way for Wilmar and Indofood to break into the New Zealand market, but it seems that as a company alone, relative to Wilmar's magnitude, this acquisition may not impact the top line too much. It would rather serve to expand their distribution channels into NZ, the extent may not be known to us given the wide array of consumer products Wilmar can push through.
1. Does anyone know for this JV, does First Pacific and Wilmar only co-operate in the Goodman Fielder area of operations (Which is predominately NZ) only?
2. Based on Goodman Fielder's FY13 results, it seems that they are paying a PE (TTM) north of 30x for it; is that reasonable or was it because Goodman Fielder just have a bad year (FY12 Net profit was -ve)?
3. Excluding their sugar operations, what would be the normalized valuation for Wilmar of just their Oil Palm, Oilseeds and consumer business?
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I think it is fairer to use a EBITDA multiple to assess reasonableness of acquisition. You may like to guess the P/E accretion/dilution with Wilmar and Indo food blended capital structure.