Goodman Fielder Spurns $1.2 Billion Wilmar-First Pacific Bid

Goodman Fielder Ltd., Australia and New Zealand’s largest baker, rejected a A$1.3 billion ($1.2 billion) offer from Wilmar International Ltd. and First Pacific Co., saying it “materially undervalues” the company.

The conditional proposal of 65 cents a share, 18 percent more than Goodman Fielder’s previous closing price in Sydney, comes almost two years after an approach from Wilmar failed to result in a deal. Perpetual Ltd., the Sydney-based company’s largest shareholder, said it should engage with its suitors this time.

A takeover would add brands including Meadow Fresh yogurt, Olive Grove margarine and Wonder White bread to Wilmar and First Pacific’s Chinese and Southeast Asian consumer divisions. In China, which accounts for half of Wilmar’s revenue, shoppers prefer imported foods due to concerns over quality and safety, according to a focus-group analysis cited in a Nov. 8 report by the Hong Kong Trade Development Council, a government agency.

“Chinese consumers view local producers with a huge degree of skepticism,” Carey Wong, research manager at OCBC Investment Research Pte. in Singapore, said by phone. “If Wilmar brings in a foreign brand made in New Zealand, that would eliminate a lot of the hurdles to developing a brand from scratch.”

Goodman Fielder climbed 15 percent, the most since February 2012, to 63.5 Australian cents at the close in Sydney trading. Its New Zealand-listed shares jumped 20 percent.

The acquisition, via a 50-50 joint venture of the two suitors, would aim to “create a leading Asia-Pacific agricultural and consumer staples company,” First Pacific said in a regulatory statement in Hong Kong.

Sugar Deal

A deal would be Wilmar’s biggest takeover since its A$1.54 billion purchase of CSR Ltd.’s Australian sugar business in 2010, according to data compiled by Bloomberg. In U.S. dollar terms, it would be the third-biggest food takeover in the Asia-Pacific region over the past five years, the data show.

Goodman Fielder should engage with the takeover suitors, said Paul Skamvougeras, deputy head of equities at Perpetual. The fund is the target’s largest shareholder with a 12 percent stake, according to data compiled by Bloomberg. Wilmar has 10 percent of Goodman Fielder, the third-largest holding

“The price is opportunistic, but we are encouraging the company to engage with Wilmar,” Skamvougeras said by phone from Sydney.

Consumer Brands

Wilmar, the world’s largest palm-oil trader, is seeking to use existing relationships with grocers in Asia to expand from its agricultural commodities business into more branded products, Wong said.

Its main consumer brands are currently cooking oils, including the Arawana label in China and Fortune in India and Indonesia, according to its website. In 2012 it set up a joint venture with Kellogg Co. to sell its cereals and Pringles potato chips in China.

PT Indofood Sukses Makmur, a Jakarta-based food company controlled by First Pacific, distributes Cheetos and Lay’s potato chips, Maggi seasoning, and Orchid Butter in Indonesia.

“We do see Wilmar moving downstream” into more consumer businesses, Wong said. “It only makes sense for them to increase the number of brands they can distribute through their channels.”

Wilmar bought its 10 percent stake in Goodman Fielder in February 2012. Discussions between the two sides 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.

‘Compelling’ Offer

Wilmar’s Australian sugar business and global consumer products division were the company’s fastest-growing units over the past two fiscal years, according to data compiled by Bloomberg.

Sales in the sugar refining business have risen 45 percent over the period, and in consumer products, they’re up 12 percent, the data show. Wilmar’s oilseeds unit is the only other one to have posted rising sales during the two years, with an 8.9 percent increase.

“This is a compelling all-cash offer,” Wilmar and First Pacific said in an e-mailed joint statement. The companies “will continue to seek engagement with the board about entering into due diligence.”

Goodman Fielder shares in Sydney rose by a record when Wilmar disclosed its existing stake in February 2012, climbing 33 percent to 69 cents. That holding cost about 58 cents a share, according to a calculation by Bloomberg.

Profit Warning

The Australian stock, which didn’t drop below 60 cents throughout 2013, plunged 22 percent to 47.5 cents on April 2 after the company forecast full-year earnings would fall as much as 15 percent below analyst estimates.

“Wilmar appear to be quite price responsive,” Sean Fenton, who helps manage about A$4.7 billion at Tribeca Investment Partners Pty in Sydney, said by phone. Goodman’s share price “came back down and they’ve turned buyer again,” he said.

Goodman Fielder was formed in 1986 from a merger between Australian and New Zealand food companies established in 1909 and 1968 respectively, according to its website. About 93 percent of its long-term assets are in Australia and New Zealand and 15 percent of its sales are in Asia and the Pacific, according to data compiled by Bloomberg.

Goodman Fielder’s board “remains focused on maximizing shareholder value and will be constructive in relation to proposals which are consistent with this objective,” the company said in a statement, saying it advised Wilmar and First Pacific representatives of its rejection at a weekend meeting.

The target company appointed Credit Suisse Group AG as financial adviser and Herbert Smith Freehills as legal adviser. Bank of America’s Merrill Lynch unit and UBS AG will advise the suitors, according to First Pacific’s statement.

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