Golden Agri Seen Cheap LBO After Palm Oil Drop: Real M&A

Golden Agri-Resources Ltd., the palm oil producer with enough plantations to almost cover the Grand Canyon, is ripe for a buyout by its largest shareholder as the stock languishes 36 percent below the value of its net assets.

Tumbling palm oil prices left the world’s second-largest producer of the cooking ingredient trading at 0.64 times its book value. That’s near the lowest level since 2009 and cheaper than 97 percent of agriculture products companies, according to data compiled by Bloomberg yesterday. Indonesia’s Widjaja family, whose $8.6 billion estimated fortune includes ownership of almost half of Golden Agri, could pay a 50 percent premium for the rest of the stock and still land a bargain, said CMC Markets Singapore Pte.

While palm oil fell 34 percent in the year through last week amid record stockpiles, prices are set to recover as the pace of output slows in Indonesia, the world’s largest producer, said RHB Investment Bank Bhd. Singapore-based Golden Agri, with a S$6.9 billion ($5.6 billion) market value, is projected to rebound to a new revenue high next year, analysts’ estimates compiled by Bloomberg show.

“You could easily foresee an attempt to take the company private,” said Jason Hughes, Singapore-based head of sales trading at CMC Markets. “If we are currently coming out of a low point for global demand, then the true future earnings of these large conglomerates may not be priced in to the current valuations at all.”

Golden Agri shares gained 1.9 percent to close at 53.5 Singapore cents, compared with the 0.4 percent gain in the benchmark Straits Times index.

Founding Family

Franky Oesman Widjaja, chairman and chief executive officer of Golden Agri, didn’t respond to a request for comment left at his office. A representative for Golden Agri declined in an e-mail to comment on any possible buyout.

The company was founded in 1996 by the family of Indonesia’s richest man, Eka Tjipta Widjaja, now 89, who built his fortune after arriving in Indonesia from China at the age of 7 and selling biscuits as a teenager, according to the Bloomberg Billionaires Index. The family bought more Golden Agri shares last month and their stake in the company is the most valuable of all their assets, which also include interests in pulp and real estate, according to the index.

Golden Agri’s 1.1 million acres (463,400 hectares) of Indonesian plantations could carpet almost all of Arizona’s Grand Canyon National Park. In addition to cooking oil and margarine, Golden Agri last year produced 2.4 million tons of crude palm oil, about 4.5 percent of global output, according to its 2012 annual report. Sime Darby Bhd., based in Kuala Lumpur, is the largest publicly traded palm oil producer.

Bottoming Out?

The price of the world’s most-used cooking oil declined in the past year as reserves in Malaysia reached a record. Stockpiles in the country, the second-largest producer behind Indonesia, have since shrunk, touching a seven-month low of 2.17 million metric tons in March, according to the Malaysian Palm Oil Board. Prices will gain about 25 percent to 2,810 ringgit ($943) a metric ton between now and 2015, according to analysts’ forecasts compiled by Bloomberg.

“We are at the bottom of the cycle both for crude palm oil prices and for stock prices,” Muzhafar Mukhtar, an analyst at Nomura Holdings Inc. in Malaysia, said by phone. A privatization of Golden Agri “makes sense from a valuation standpoint.”

Golden Agri’s revenue, set to fall this year for the first time since 2009, will climb 12 percent in 2014 to a record $6.49 billion, according to the average of 17 analyst estimates compiled by Bloomberg. Net income in 2014 will gain 12 percent to $528 million, the data show.

Buyout Appeal

“When you privatize a company, you don’t look at just the current year’s earnings,” Alvin Tai, a Kuala Lumpur-based analyst at RHB, said by phone. “The long-term appeal is definitely there. Can you go wrong betting on this industry over five years? I don’t think you’d go wrong.”

The almost 30 percent tumble by Golden Agri stock in the past year to as low as 52 Singapore cents on May 2 left the company at its lowest valuation relative to net assets since July 2009, according to data compiled by Bloomberg. At last week’s closing price of 53 Singapore cents, Golden Agri was cheaper than all but two of 60 peers worldwide with a market value of more than $500 million, the data show.

Golden Agri was the fourth most-shorted stock among the 30 members of Singapore’s benchmark Straits Times Index at the end of April, according to data compiled by Markit and Bloomberg. Short interest, as a percentage of shares held by investors willing and able to trade, was 6.2 percent, the data show.

Widjaja Purchases

“Substantial shareholders and business managers may feel they can get a better return on their investment by no longer holding a listed company,” Hughes at CMC Markets said in an e-mail. “They can potentially pick up a bargain in the process.”

The Widjaja Family Master Trust, through Jesslyne Widjaja, the daughter of Golden Agri CEO Franky, acquired 250,000 more shares of Golden Agri on April 22 for S$138,500, or about 55 cents a share, keeping the family’s stake at 49.95 percent, filings show.

Returning Golden Agri to private ownership may make it more difficult for the family to tap capital markets to fund growth, according to CIMB Group Holdings Bhd. Last year, Golden Agri sold $400 million of convertible bonds and a further 1.5 billion ringgit of Islamic bonds to help finance expansion.

“If you want to continue to grow the business, if you’re a listed company, you have more options,” Ivy Ng, an analyst at CIMB in Kuala Lumpur, said in a phone interview. “Privatizing may limit their options.”

Spending Plans

Gold Agri, which had $669 million of cash and equivalents at the end of 2012, plans to spend about $550 million this year to help expand plantations and refining capacity.

With palm oil prices set to rise, the chance to take full control of Golden Agri and run it without having to answer to public shareholders may tempt the Widjaja family, according to Kelly Teoh, a market strategist at IG Asia Pte in Singapore.

“There is a lot more freedom becoming private,” Teoh said in an e-mail. “Palm oil prices will eventually stabilize and will remain a cash-cow business in the long run.’

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