Goodman Fielder Bid Cut by 3.6% Amid A$400 Million Writedown

Wilmar International Ltd. and First Pacific Co. lowered their offer for Goodman Fielder Ltd. by about 3.6 percent as Australia’s largest baker plans to write down the value of its assets amid intense competition.

The bidders will offer 67.5 Australian cents a share, or A$1.32 billion ($1.25 billion), for the Sydney-based maker of Meadow Fresh yogurt, Olive Grove margarine and Wonder White bread, Goodman Fielder said in a regulatory statement today. The company, which had A$1.52 billion in net assets on Dec. 31, will also take writedowns of A$300 million to A$400 million, or as much as 26 percent of its assets, in the year ended June 30.

The lower bid and writeoff highlight the challenges for the suitors after Goodman Fielder posted net losses in two of the past three years, with analysts estimating another loss in the 12 months ended June. Australian food suppliers have been squeezed by competition between Woolworths Ltd. and Wesfarmers Ltd.’s Coles, which control about 80 percent of the country’s grocery market and have promoted A$1 loaves of bread to spur sales.

Wilmar and First Pacific will “have to turn the business around and they should be confident that they can,” Stan Shamu, a market strategist at IG Ltd. in Melbourne, said by phone today. “It looks like a win-win for shareholders.”

Goodman Fielder fell below the offer price and suffered its biggest drop in three months, slipping 3.7 percent to 65.5 Australian cents at the close of trade in Sydney. The benchmark S&P/ASX 200 index rose 1.5 percent.

‘Materially’ Undervalued

The A$49 million reduction in the bid price takes it to about 3.6 percent below the existing 70 Australian cents-a-share proposal and compares with an initial 65-cent bid that Goodman Fielder said “materially undervalues” the business.

The company will also be able to pay a 1-cent dividend under the reduced offer, it said today.

“The proposal represented an attractive value outcome for shareholders,” Goodman Fielder Chairman Steve Gregg said in the statement today. “The board will unanimously recommend that shareholders vote in favor.”

Goodman Fielder traded as low as 48 cents on April 2 after the company forecast writedowns and said earnings would fall as much as 15 percent below analyst estimates. The shares closed at 68 cents on June 27 before being halted pending the statement on the bid from Wilmar and First Pacific.

Enterprise Value

After spurning an initial offer, Goodman Fielder’s board backed a proposal on May 16 that raised it by 5 Australian cents and gave the bidders access to its books to conduct due diligence for about four weeks, according to a statement at the time.

At the June 27 close of 68 cents a share, Goodman Fielder had an enterprise value of A$1.88 billion, equivalent to about 7.7 times its A$243.7 million in earnings before interest, taxes, depreciation and amortization in the most recent 12-month period. That compares with a median multiple of 10.1 times Ebitda in 39 baking and dairy takeovers globally over the past five years, according to data compiled by Bloomberg.

After the writedown, the offer values Goodman Fielder’s equity at about 1.2 times its net assets, against a median of 2.6 times in 52 baking and dairy deals over the period.

Goodman Fielder will probably post a loss of A$44 million in the year ended June 30, according to the median of seven analyst estimates compiled by Bloomberg.

Increasing Incomes

Rising incomes in nearby Asian markets have stoked interest in acquiring food-related companies in Australia, the fourth-biggest wheat exporter and third-largest shipper of beef. About $11 billion in deals have been announced in the country’s food and agricultural segment over the past five years, including the previous offer for Goodman Fielder, according to data compiled by Bloomberg.

Wilmar, the world’s biggest palm-oil producer, is bidding with Hong Kong-based investment group First Pacific through a 50-50 joint venture.

The Asian markets where Wilmar and First Pacific’s retail customers are based make up about 15 percent of Goodman Fielder’s sales, according to data compiled by Bloomberg, with Australia accounting for about 51 percent of the total.

Wilmar had originally approached the baker and discussed a takeover after buying a 10 percent stake in February 2012. Discussions that year failed to produce a price they could agree on and Wilmar was considering selling the holding, Chief Executive Officer Kuok Khoon Hong said in August 2012.

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