GOODMAN Fielder has stepped up its defence against a $1.27 billion takeover offer by kicking off a sale process for its New Zealand dairy business, which could be worth at least $600 million.
Goodman Fielder has sent out a flyer to prospective buyers and joint venture partners this week and is expected to release an information memorandum before the end of May.
According to the flyer, a copy of which has been obtained by The Australian Financial Review, the New Zealand dairy business has annual sales of around $NZ500 million ($465 million) and earnings before interest, tax, depreciation and amortisation of $NZ60 million.
These figures, which have not been previously disclosed, are based on average sales and earnings over the last three years and forecasts for 2014, when earnings are expected to take a hit from a 50 per cent rise in New Zealand farmgate milk price.
The figures also exclude losses from Goodman’s New Zealand meat business, which was recently sold, and include sales and earnings from dairy and UHT milk sales into Asia, which are currently reported as part of Goodman’s Asia-Pacific business unit.
Based on the median EBITDA multiple paid for dairy assets over the last decade of 11.6, the NZ dairy business could be worth around $647 million. This compares with its current $450 million book value and market valuations of around $460 million.
Even on a more conservative multiple of 10 times earnings, the unit could be worth at least $550 million.
Goodman announced a strategic review of the NZ dairy business in February after receiving unsolicited expressions of interest. It is believed to have been approached by about 20 potential buyers, including global and Asian-based food and dairy companies such as Danone and Saputo, who are keen to expand their presence in Asia.
The company now appears to have accelerated the dairy sale process after receiving a $1.27 billion takeover proposal from Singapore-based oils trader Wilmar International and Hong Kong investor First Pacific last week.
Goodman has denounced the 65¢-a-share offer as «opportunistic», but says it is willing to discuss any proposal that maximises value for its shareholders.
Goodman’s two largest institutional shareholders, Perpetual Investments and Ellerston Capital, who hold about 25 per cent of the stock, are believed to be seeking around 75¢ a share.
Analysts believe Wilmar and First Pacific could afford as much as 75¢ or 80¢ a share, based on multiples paid in recent food transactions and after taking into account at least $10 million in synergies.
However, Wilmar and First Pacific are sticking by their proposal, despite pressure from shareholders to lift the price. First Pacific’s chief executive, Manuel V. Pangilinan, was quoted in Manila’s Business Mirror on Tuesday saying he stood by the proposal.
«We are standing by our offer . . . and we are staying with the [offer] price,» Mr Pangilinan was quoted as saying.
Goodman Fielder declined to comment on the implications of Mr Pangilinan’s apparently off-the-cuff statement or the NZ dairy sale process.
Under «truth-in-takeovers» principles, Wilmar and First Pacific would be unable to lift their offer price.
However, at this point the pair have made a non-binding conditional proposal under a scheme of arrangement, rather than a formal bid.
If Goodman sells the NZ dairy business or enters into a joint venture, it could trigger one of the conditions precedent of the takeover proposal.
The offer is conditional on no material asset sales or joint ventures.
While the pair have made a joint bid and have ruled out splitting up Goodman’s assets, it is believed that First Pacific is primarily interested in the NZ dairy business.
Sales of fresh and UHT milk to Asia currently account for about 10 per cent of the unit’s revenues, but Goodman sees scope to boost sales significantly to take advantage of surging demand from Chinese consumers.
According to the flyer, the unit is the second-largest player in the NZ dairy market after Fonterra and has a long-term raw milk supply agreement – backed by legislation – with Fonterra.
«Dairy is a highly valued business for Goodman Fielder given the unique platform it provides to access the strong demand growth in Asia for high quality, branded dairy products, combined with a leading NZ domestic business,» the flyer said.
Source: The Land
