Goodman Fielder Takeover Seen With Wilmar Instant 31%: Real M&A

Goodman Fielder Takeover Seen With Wilmar
Bottles of Wilmar International Ltd. Arawana brand cooking oil sit on a shelf at a supermarket in Shanghai, China. Wilmar has tripled revenue from consumer products in the last four years. Photographer: Qilai Shen/Bloomberg

Wilmar International Ltd., the world’s largest palm oil trader, is giving investors in Goodman Fielder Ltd. the chance for a 31 percent return as it considers an expansion into Crisco oil and Newman’s Own salad dressings.

Singapore-based Wilmar disclosed last week that it owns 10 percent of Goodman and is considering buying more of Australia’s biggest baking company. Sydney-based Goodman, with baking, dairy and oil brands that Wilmar says are “complementary” to its existing consumer business, is trading at a 59 percent discount to its sales, according to data compiled by Bloomberg.

Wilmar, which has tripled revenue from consumer products in the last four years, could tap its distribution network to boost sales of Goodman’s brands in Asia, according to BNP Paribas SA and Maybank Kim Eng Securities Pte. Goodman, which sells Crisco, Paul Newman’s salad dressings and Wonder White breads in Australia, would fetch as much as 89 cents a share in a takeover by Wilmar or another buyer, according to JPMorgan Chase & Co. That would value Goodman at A$1.74 billion ($1.9 billion), 31 percent higher than last week’s close, data compiled by Bloomberg show.

A takeover “makes a lot of sense,” Michael Greenall, a Kuala Lumpur-based analyst at BNP Paribas, said in a phone interview. “There’s potential benefit for both companies.”

Goodman today rose as much as 2.9 percent in Sydney trading before closing up 1.5 percent at 69 cents. That’s the highest level in more than six months. Australia’s benchmark S&P/ASX 200 index fell 0.2 percent. Wilmar fell 0.4 percent to S$5.03 in Singapore, the lowest since Dec. 30.

Oil Palm Plantation

Wilmar, which already owned a 2 percent stake in Goodman, became the company’s biggest shareholder when it bought the remaining 8 percent on Feb. 27 using UBS AG as an intermediary, according to regulatory filings.

A spokeswoman for Wilmar declined to comment on its plans for Goodman. Goodman’s management hasn’t spoken to Wilmar’s management since the increased stake was disclosed, Goodman’s Sydney-based spokesman, Ian Greenshields, said on March 2.

“We have no offer in front of us,” he said. “We welcome them to the share register.”

After starting in 1991 with an oil palm plantation in Western Sumatra, Indonesia, Wilmar has become the world’s largest producer of the oil used for cooking and also to make biofuel, chocolates and cosmetics. Sales have surged sixfold to $44.7 billion in the past five years after a 60 percent jump in palm oil prices and a decade of acquisitions that added sugar refiners, flour mills and edible oil producers, according to data compiled by Bloomberg.

‘Two Birds’

With more than 200,000 hectares of oil palm plantations in Malaysia and Indonesia, Wilmar said it was building an integrated agricultural products business from “origination to branding, merchandising and distribution” when it announced the purchase of the Goodman stake last month.

“If you are an upstream player and you want to go downstream, one way to do this is to go and buy a product which you then need to distribute,” said BNP Paribas’s Greenall. “The other way is to buy a distributor which has the networking channels or marketing channels throughout the world to sell your products through.”

With Goodman, which has products to sell in Asia as well as an established sales network in Australia, Wilmar would get both. “You hit two birds with one stone,” Greenall said.

In 2010, Wilmar held 43 percent of the retail market for cooking oil in China, according to Euromonitor International. The researcher forecasts sales of packaged food there to rise 51 percent to 1.48 trillion yuan ($230 billion) in the four years through 2015.

Margins Shrink

Still, margins at Wilmar’s consumer business shrank last year as China capped cooking oil prices for most of the year even as costs rose. Falling prices also hurt profits in the sugar business, which Wilmar acquired with the A$1.8 billion purchase of Australia’s biggest refiner in 2010. As demand for palm oil also weakened, profits fell for two consecutive years.

“They’re trying to look for other things to help to grow the business,” Alvin Tai, an analyst at OSK Holdings Bhd., said by phone from Kuala Lumpur. “Wilmar really needs a good growth angle.”

Goodman, founded in 1909 in the farming town of Tamworth, competes for space on supermarket shelves for products including La Famiglia bread, White Wings flour and Chesdale processed cheese. The company’s sales and profits have fallen because of rising ingredient costs and competition with Australia’s largest supermarkets.

“Goodman is a turnaround story in the making,” said Rohan Suppiah, an analyst at Maybank Kim Eng in Singapore. Wilmar “can use those brands and apply them to their marketing strategies in other parts of Asia, especially in China, where they are particularly strong,” he said.

Praise Mayonnaise

Goodman, whose shares fell more than 60 percent from the 2005 initial public offering price of A$2 through its earnings results in August, announced a strategic review last year and has said it may sell certain parts of its business. Wilmar had been in talks to acquire the Integro specialty ingredients and the New Zealand milling businesses, Greenshields said last week.

Asia accounts for about 12 percent of sales for Goodman, which sells brands including Meadow Lea margarine, Meadow Fresh long-life milk and Praise mayonnaise in China and Southeast Asia. While its sales fell in the six months through December, revenue from Asia Pacific rose 10 percent and it was the most profitable division of the company, last month’s earnings release showed.

Relative Value

Wilmar or another buyer may pay as much as 89 cents a share, or a 31 percent premium to last week’s closing price of 68 cents. That would value Goodman at an enterprise value of about 10 times its earnings before interest, taxes, depreciation and amortization in the twelve months through December, JPMorgan analyst Stuart Jackson wrote in a Feb. 28 research note.

That compares with the median price of 10.7 times Ebitda offered in twenty-five purchases of food companies in the last five years, data compiled by Bloomberg show. Wilmar may not be the only interested buyer, according to Jackson.

“There could be other companies in the region that could look at Goodman’s assets as a strategic opportunity to build a food production base in Australia for export into Asia,” he wrote.

Andy Bowley, an analyst at Citigroup Inc. in Sydney, said Wilmar may be more interested in Goodman’s edible oils and fats business and the New Zealand milling operation, rather than a purchase of the whole company. Goodman may instead lure private equity buyers, he said.

`Potential to Unlock'

“It has turnaround potential, strong cash flows and potential to unlock value in a break up,” he said. “Goodman Fielder has certainly got to be on the list that private equity would look at.”

Even after rising 32 percent since Wilmar revealed its stake, Goodman last week traded at 0.41 times sales, according to Bloomberg data. That’s less than half the average valuation afforded to 90 food manufacturers in developed economies with a market capitalization of more than $1 billion, the data show.

“The market dislikes Goodman Fielder -- it has been a perennial disappointer since listing,” Bowley said. “But the market is underestimating the potential recovery.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE