Wilmar International Ltd., the world’s largest palm oil trader, bought a 10.1 percent stake in Goodman Fielder Ltd. and is studying whether to acquire more shares in Australia’s biggest baking company.
Wilmar paid A$115 million ($124 million) for the stake in Goodman Fielder, which has a market value of A$1.3 billion, the Singapore-based company said today in a statement. “Wilmar is currently assessing whether to increase its shareholding.”
Buying the stake in Goodman Fielder, which has local rights for Crisco oils and Newman’s Own salad dressings, increases Wilmar’s exposure to Australia after paying A$1.75 billion for the nation’s biggest sugar company, Sucrogen Ltd. Goodman Fielder shares, which hit a record low of 39.5 cents on Jan. 6, had their largest one-day gain since their listing, jumping 33 percent to 69 cents.
“At this price, we think Goodman remains substantially undervalued,” David Herro, Chief Investment Officer at Chicago-based Harris Associates LP, said by e-mail. Harris is Sydney-based Goodman’s second-largest shareholder with an 8 percent stake, according to data compiled by Bloomberg.
The bid is “opportunistic”, Goodman Fielder spokesman Ian Greenshields said by telephone from Auckland. “Value lies well north of 60 cents,” he said.
The stake cost about 58 cents a share, based on the 2 billion shares Goodman has on issue, according to Bloomberg calculations. Wilmar rose 0.4 percent to S$5.09 in Singapore trading at 2:57 p.m. local time.
Wilmar, which already held a stake of less than 5 percent in the company, had been in talks with Goodman Fielder over the Australian company’s plans to sell off its Integro specialist ingredients and New Zealand-based milling businesses, Greenshields said.
A takeover would be the largest transaction in Asia’s food industry since Nestle SA last year bought 60 percent of Chinese snack and candy maker Hsu Fu Chi International Ltd. for S$2.07 billion ($1.7 billion), according to data compiled by Bloomberg.
Food company takeovers worth more than $1 billion on average valued the target’s debt and equity at 10.7 times the previous year’s earnings before interest, tax, depreciation and amortization, according to Bloomberg data. Goodman Fielder, whose brands also include Helga’s and Wonder White bakery, is trading at 6.63 times estimated full-year EBITDA.
Soaring prices of commodity ingredients such as grains and oils, combined with weak consumer demand in its home market, contributed to a 77 percent decline in Goodman Fielder’s first-half profit. The company plans to save A$100 million in costs by the end of 2015, mostly through cutting jobs.
The Sucrogen business as well as Goodman’s baking, dairy, and oils brands “are complementary to Wilmar’s consumer pack business” in Asia, Wilmar said in the regulatory statement.
Wilmar, whose third-quarter profit gained 24 percent, became the world’s eighth-largest sugar producer after buying Sucrogen in fiscal 2011 in the company’s biggest acquisition. It is diversifying to rely less on China’s cooking oil market, where it has a 50 percent share. Wilmar, which sold S$350 million of bonds last month, would need Australian government approval to buy more than 15 percent of Goodman Fielder,
“Wilmar definitely has the war chest,” Nomura Holdings Inc. analysts Tanuj Shori and Vishnu Reddy said today in a note, adding they didn’t expect many near-term cost benefits of any takeover. “This acquisition, if it happens, would be a small positive, which would give the company access to new, but matured markets.”
Wilmar has S$5.8 billion of bond and loan facilities maturing by the end of 2019, according to data compiled by Bloomberg. The company is currently in talks with a group of banks led by DBS Group Holdings Ltd. about extending a $614 million revolving credit facility for another 12 months, a person familiar with the matter said separately.
Goodman Fielder’s shares had slumped 56 percent in the year before today, compared with a 12 percent decline in the benchmark S&P/ASX 200 Index.