Charoen Pokphand to Pay $2.1 Billion for Majority Stake in Hong Kong Unit

Charoen Pokphand Foods Pcl (CPF), Thailand’s biggest producer of meat and animal feed, agreed to acquire 74 percent of a Hong Kong affiliate for $2.1 billion, gaining access to agricultural businesses in China and Vietnam.

CP Foods plans to buy 18.8 billion shares in CP Pokphand Co. (43) at 90 Hong Kong cents each from CP Group units, the Bangkok- based company said yesterday in a statement. It will issue new stock to CP Group and borrow $1.49 billion in overseas loans to fund the 66.3 billion-baht ($2.1 billion) purchase, it said.

CP Foods’ Billionaire Chairman Dhanin Chearavanont, ranked this week as Thailand’s richest man by Forbes magazine, has been investing in farms and factories in India, Turkey and Russia to tap rising food demand. Chief Executive Officer Adirek Sripratak said the CP Pokphand deal will give the company access to 28 provinces in China, helping boost annual profit by 20 percent.

“The reorganization is a very good deal for CP Foods because of the better synergy from its animal-feeds and farming businesses,” said Jitra Amornthum, head of research at Finansia Syrus Securities Pcl, who recommends buying the stock. “Still, the addition of new loans will increase interest costs that may curb earnings if the company can’t boost its sales growth fast enough.”

CP Foods is paying 12.7 times earnings before interest and tax, compared with the median of 21.51 times for eight similar deals over the past five years, according to data compiled by Bloomberg. There have been 225 deals announced in the agricultural operations industry this year, valued at $8.7 billion, compared with $13.8 billion of deals last year.

Rising Consumption

Annual meat consumption in China has risen to 55 kilograms a person from 42 kilograms in 2000, Nirgunan Tiruchelvam, an analyst at Standard Chartered Plc, said in a Nov. 3 report.

“Meat consumption is set to rise with increased income levels,” he said. “CP Pokphand is an undiscovered gem within the CP Group.”

CP Group is the world’s largest provider of animal feed, used to provide protein and carbohydrates for chicken, pigs and cattle, according to Standard Chartered. CP Pokphand is the second-biggest animal-feed producer in China, it said.

“This acquisition will significantly boost sales and earnings by adding market leaders in animal feeds and meat production in China and Vietnam,” Adirek said at a briefing. The company said the acquisition will make it Asia’s biggest publicly traded livestock and aquaculture company.

New Shares

CP Foods will issue 694 million shares to CP Group at 30 baht each, according to the statement. CP Group’s ownership in CP Foods will rise to 49 percent from 41 percent after the transaction, the company said. CP Foods’s debt-to-equity ratio will increase to 1.03 times from 0.6 times.

The company obtained a waiver from making a mandatory general offer from the Hong Kong Securities & Futures Commission, it said, adding that it doesn’t plan to delist CP Pokphand’s shares. UBS AG and Asia Plus Securities Pcl advised CP Foods on the acquisition.

CP Pokphand will resume trading in Hong Kong on Nov. 28, according to its filing to the city’s stock exchange yesterday. The stock gained 8.4 percent to 90 Hong Kong cents on Nov. 24.

CP Foods yesterday cut its sales target for the year because of flooding in Thailand. The company expects to post revenue of 210 billion baht, down from an earlier projection of 220 billion baht, Adirek said.

Dhanin has a net worth of $7.4 billion, according to Forbes Asia’s 2011 Thailand Rich List.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net

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