Thursday 26th April 2018
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Philippines-based poultry group Bounty Fresh Foods will mount a $437.8 million takeover bid for NZX-listed Tegel Group at a 50 percent premium to the share price, which has been beaten up after multiple earnings downgrades.
The Filippino company already has Tegel's cornerstone shareholder Affinity Equity Partners on board, signing a lock-up agreement with the holding company Claris Investments for a 45 percent stake. The offer of $1.23 per share is a premium to the 82 cents the stock closed at on Tuesday, although it's still a discount to the $1.55 price the shares sold at in the 2016 initial public offering. The shares jumped 39 percent to $1.14 this morning, still below the takeover offer.
"I would imagine a large number of long-suffering shareholders in Tegel will probably welcome this offer at a price well above what it was last at," said Grant Williamson, a director at Hamilton Hindin Greene. "It's been a disappointing IPO - since it came to market it's really let investors down."
Bounty Fresh will pursue a full takeover when it formally lodges an offer, but will accept a 50 percent stake, the notice of intention document shows. Other conditions include securing Overseas Investment Office approval and for Tegel to meet certain earnings thresholds.
"Tegel is a leading brand in the New Zealand market with real potential to expand into international markets, particularly the Philippines where Bounty Fresh Group’s sales and distribution networks are extensive,” Bounty Fresh president Tennyson Chen said in a statement. "We believe our group is naturally aligned to Tegel, and our offer is motivated by a desire to further grow the Bounty Fresh Group beyond the Philippines."
The NZX-listed company's board has appointed a sub-committee including chair David Jackson and independent directors Bridget Coates and George Adams to respond to the unsolicited offer, and advised shareholders to seek professional advice before taking any action.
"While noting the draft offer price represents a 50 percent premium to the 82 cents close price of Tegel shares on 24 April 2018 on the NZX, the independent directors consider it too early to comment on the draft offer at this time," Jackson said. "In particular, the independent directors do not yet have full details in respect of Bounty’s proposed strategy for Tegel, which is something we are focused on."
Bounty Fresh, via Bounty Holdings New Zealand, wants to use its existing sales and distribution channels to sell Tegel products to boost exports to the Philippines and Indonesia, and wants to supplement export growth into Asia.
"Bidco views the investment in TGH as a long-term, strategically important business to the Bounty Group with no short to medium term intention to exit," the notice said. "As such, Bidco may evaluate business decisions using criteria that are oriented towards long-term business sustainability."
Last month, Tegel downgraded its 2018 earnings outlook citing slower progress in Australia, and one-time costs ranging from compliance rule changes to restructuring and disruptions to its New Plymouth processing plant. The company has failed to meet the earnings forecasts in its offer documents as a glut of domestic chicken constrained prices, which has seen the share price drop 30 percent so far this year.
Hamilton Hindin Greene's Williamson said when a company underperforms and the share price is low, it wil attract potentials buyers on the hunt for a bargain.
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