Wilmar Bids $1.5 Billion for CSR Sugar Unit, Counters China's Bright Food

Wilmar International Ltd., the world’s largest palm oil trader, agreed to buy CSR Ltd.’s sugar unit for A$1.75 billion ($1.5 billion), beating China’s Bright Food Group Co.’s bid for Australia’s biggest refiner.

The offer includes A$1.35 billion in cash and A$403 million in assumed net debt, Singapore-based Wilmar said today in a statement. Sydney-based CSR is the world’s second-largest exporter of raw sugar and Australia’s No.1 producer of sugar- based ethanol and renewable energy generator from biomass.

Buying Sucrogen will give Wilmar mills that produce 45 percent of Australia’s raw sugar and account for about 4 percent of global trade. Wilmar’s Chief Executive Officer Kuok Khoon Hong, said the purchase will help his company’s plans to expand sales in Indonesia and other Asian nations.

“They’ve been talking about growing their own plantations in Indonesia” to take advantage of rising demand, Carey Wong, an analyst at OCBC Investment Research, said from Singapore. “This deal gives them a foot in the door a lot faster.”

Wilmar, which expects the transaction to boost earnings from the first year, gained 2.3 percent to S$5.88 on the Singapore stock exchange while the Straits Times Index was little changed at 2,844.84 as of 2:35 p.m. local time. CSR rose 3.5 percent to A$1.755 on the Australian stock exchange at the 4:10 p.m. Sydney-time close.

Swap Contracts

The cost of insuring CSR’s bonds from non-payment fell the most in almost two months. Credit-default swaps on CSR dropped 13 basis points to 69 basis points as of 3:57 p.m. in Sydney, the biggest decline since May 10, according to Nomura Holdings Inc. and CMA DataVision. The swap contracts typically fall as perceptions of credit-worthiness improve.

Bright Food Group, Shanghai’s biggest food company, raised its initial conditional offer for CSR’s sugar unit to A$1.75 billion in April. It intends to trim the bid to between A$1.65 billion and A$1.7 billion, the Australian Financial Review said today, citing unidentified people close to the deal.

“A prominent investment bank had valued the business at A$1.5 billion so this looks to be a very good price for shareholders,” Ben Potter, a strategist with IG Markets, said in an e-mailed note. The deal provides “certainty after months of negotiations with China based Bright Food Group,” he said.

Sale Price

The Sucrogen sale was completed at an earnings before interest, tax, depreciation and amortization multiple of 9.7 times, CSR said today. That compares with a multiple of 8.8 times for the acquisition of Spanish sugar business Azucarera Ebro SA by Associated British Foods Plc. That deal was announced in December 2008.

Chen Chunshan, a Shanghai-based spokesman for Bright Food, wasn’t available to comment.

A total of $39.2 billion has been offered for Australian- based companies in announced deals so far in 2010, according to data compiled by Bloomberg. Today, Banpu Pcl, Thailand’s biggest coal producer, agreed to pay A$2 billion for the rest of Australia’s Centennial Coal Co. as demand climbs in China.

Australia, the third-largest sugar exporter after Brazil and Thailand, ships most of its raw sugar to Asia. Sugar price premiums for deliveries in Asia are likely to remain at “well above normal” levels until near the end of the year amid a supply shortfall, Mackay Sugar Ltd., Australia’s second-largest miller, said last month.

Sugar Futures

Raw sugar for October delivery gained 2.6 percent, to 16.7 cents a pound on ICE Futures U.S. in New York on July 2. The most-active contract earlier rose to 16.72 cents, the highest level since April 22. The sweetener reached a 29-year high of 30.4 cents on Feb. 1 after adverse weather reduced production in Brazil and India.

Wilmar, whose 2009 profit rose to a record $1.88 billion as demand for vegetable oil soared in China, plans to enter the sugar-milling and the cane-plantation businesses in Indonesia, Kuok said March 1. The oilseeds and grains company has more than 300 processing plants across four nations.

About 40 percent of China’s bottled edible oil is supplied by Wilmar and it may take advantage of this network to supply sugar to the world’s second-largest consumer, OCBC’s Wong said.

China’s demand for sugar is forecast to rise to 15.5 million metric tons in the 2010-2011 season, from 14.9 million tons, the U.S. Department of Agriculture said in May.

Colonial Sugar

CSR was formed in 1855 and known as the Colonial Sugar Refining company before changing its name in 1973 after an expansion into building materials and resource projects. It sought to sell the sugar business to take advantage of a surge in prices last year after adverse weather reduced output in Brazil, the largest producer, and India.

The sale will leave the company focused on its building products business, CSR said in a statement. Alternative plans to spin off the sugar business will be put on hold until the end of the year, it said.

“If for any reason the sale cannot be completed CSR may seek to proceed with a form of demerger,” the company said in the statement. It expects the deal to be completed by or before the fourth quarter.

To contact the reporters on this story: Wendy Pugh in Melbourne wpugh@bloomberg.net; Luzi Ann Javier in Manila at ljavier@bloomberg.net.

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