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Indofood Agri Resources gets buyout offer from Indomie maker at S$0.28 per share

THE maker of Indomie instant noodles is offering S$0.28 per share of Indofood Agri Resources to take the Singapore-listed agribusiness group private. The offer values the company at around S$390.9 million.

The bid by Indofood Sukses Makmur comes at a 7.7 per cent premium to Indofood Agri's last traded price of S$0.26 on April 5, before trading was halted for the announcement. The stock was trading at the offer price as at 9.40am on Thursday after trading resumed.

Indofood Sukses Makmur, which is controlled by Indonesian tycoon Anthoni Salim, already holds a 74.52 per cent stake in the target company. Its offer is conditional upon obtaining control over at least 90 per cent of the target. If its bid succeeds, the offeror plans to delist and privatise Indofood Agri.

In its offer announcement, Indofood Sukses Makmur said its offer gives Indofood Agri shareholders an opportunity to realise their investment which “may otherwise not be readily available” due to the “low trading liquidity of the shares”, the Singapore company said in an exchange filing.

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The offer price represents a premium of approximately 21.5 per cent, 26.3 per cent, 29.0 per cent and 23.1 per cent over the volume-weighted average price (VWAP) per share for the one-month, three-month, six-month and 12-month periods respectively, up to and including April 5, the last trading day before the announcement.

The offer price includes rights to dividends paid out after Thursday. If Indofood Agri pays out a proposed S$0.0025 per share dividend for 2018 before the offer is completed, accepting Indofood Agri shareholders - who will receive the dividends instead of the offeror - will receive only S$0.2775 per share from the offeror.

Indofood Agri and its subsidiaries will continue to develop and grow their existing businesses, with continued reviews on their operations and strategic options being conducted from time to time. Indofood Sukses Makmur will retain flexibility at any time to consider further options or opportunities in relation to Indofood Agri.

It added that there are no current intentions by the offeror to introduce major changes to the existing business, re-deploy fixed assets or discontinue the employment of existing employees, other than in the ordinary and usual course of business. The offer document will be issued within 14 to 21 days from the announcement date.

Indofood Agri’s board will also appoint an independent financial adviser (IFA) to advise company directors considered independent for the purposes of the offer. A circular containing the IFA’s recommendation will be also be issued.

DBS analysts William Simadiputra and Lim Rui Wen have recommended for shareholders to accept the offer even though it is “at the lower end of acquisition multiples for plantations”.

The offer represents around 0.4 times price-to-book value (P/BV) or US$4,400 (enterprise value per hectare or EV/ha), which is at a discount of typical plantations transactions at US$13,000 EV/ha after adjusting for matured planted area.

“We believe that Indofood Agri's steep discount to its peers is attributed to its shrinking operating profit margins, unlike its peers who have been able to demonstrate an ability to maintain their margins amidst palm oil price movements,” DBS’s analysts said.

DBS’s last recommendation for Indofood Agri was to “hold”, with a target price of S$0.19 per share, as it was cautious on the company’s earnings momentum and ability to return to pre-2017 earnings levels, even though its share price performance and valuations were undemanding.

DBS recommends “more direct exposure” via ownership of Indofood Agri’s Indonesia-listed upstream entity London Sumatra, which it recommends to “buy” with a target price of 1,700 rupiah.

Meanwhile, David Blennerhassett, an independent analyst who publishes on Smartkarma, said Indofood Sukses Makmur could afford to raise the offer price and “impart some justice to long-suffering minorities”, having recently bounced off multi-year low levels against a weakening global demand backdrop for palm oil.

“This strikes me as an offer requiring a bump to get it over the line,” Mr Blennerhassett said. He added that the deal is “small beer” for offeror Indofood Sukses Makmur, as Indofood Agri’s free float is currently at 25.48 per cent, hence a successful offer would incur just around US$67 million.

While Mr Blennerhassett finds that the takeout price “appears okay on fundamentals relative to peers”, the takeover premium of around 21 per cent using the one-month VWAP is “not a knock-out”.

As the offeror has no intention to restore the free float should it get breached, Mr Blennerhassett said it could potentially “play hardball” and opt for a delisting if it secures 75 per cent of shares out of the offer, assuming the offeror waives the 90 per cent condition and declares the offer unconditional.