By Jenny Ruth
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Monday 31st January 2011 |
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Long-term investors in PGG Wrightson should sell into Agria's takeover bid and then buy back from Pyne Gould Corporation because the latter has said it intends to divest its residual stake, says Kar Yue Yeo, an analyst at First NZ Capital.
Agria and China's New Hope Group want to take their stake from 31% to 50.01% and are offering 60 cents a share. Pyne Gould, which owns 18.3%, is acting as a backstop with its entire holding.
"The offerors believe they have the operational and financial capacity to leverage PGW's expertise into the China market," Kar Yue says.
"The jury is out and it is uncertain how these benefits would be shared," he says. While a higher offer is possible, it is unlikely, given Pyne Gould's willingness to sell at 60 cents, he says.
The partial bid will underpin the stock for the next three months. "Apart from this, we look forward to George Gould, the new chief executive, providing a roadmap to return PGW to higher profitability," Kar Yue says.
His "normal year" earnings before interest, tax, depreciation and amortisation (EBITDA) for PGW is between $75 million and $80 million, between 30% and 35% higher than the company's guidance for the year ending June.
Recommendation: Neutral.
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