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Indomie maker’s buyout offer for Indofood Agri ‘not fair but reasonable’, says IFA

THE independent financial adviser (IFA) to the recommending directors of Indofood Agri Resources has found the buyout offer by Indomie maker Indofood Sukses Makmur to be “not fair but reasonable”.

Novus Corporate Finance told the directors to recommend that shareholders of Indofood Agri vote in favour of the offer, even though the offer is at the lower end of acquisition multiples for plantations.

It added that its last recommendation on Indofood Agri was “hold” with a target price of S$0.19 per share, as it remains cautious on the group’s earnings momentum and its ability to return to pre-2017 earnings levels, although share price performance and valuations were undemanding.

Based on the advice, the recommending directors - who are considered independent insofar as the offer is concerned - have recommended shareholders accept the offer, unless they are able to obtain a price higher than the offer price on the open market. This is after accounting for brokerage and related costs.

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Indofood Sukses Makmur had offered S$0.28 per share to take the company private, a price which will value the agribusiness group at around S$390.9 million.

The offer was determined as “not fair” by the IFA as it represents a “significant discount” to Indofood Agri’s unaudited net asset value per share of the group as at March 31.

Indofood Agri’s EV/Ebitda ratio (enterprise value to earnings before interest, taxes, depreciation and amortisation) and EV/hectare as implied by the offer price was also found to be generally below the corresponding mean and median EV/Ebitda ratio and EV/hectare of comparable companies, the IFA said.

The premiums of the S$0.28 per share offer price over each of the last transacted price, one-month volume-weighted average price (VWAP), three-month VWAP and six-month VWAP, up to and including the last trading day on April 5, of Indofood Agri shares were also below the corresponding mean and medium premiums of precedent privatisations.

Precedent privatisations refer to other privatisations currently occurring 24 months prior to and including the last trading day. Examples cited were Courts Asia, Declout and PCI Limited, to name a few.

That being said, it was deemed “reasonable” due to the group’s decline in gross profits and gross profit margins from fiscal 2016 to fiscal 2018, and from Q1 2018 to Q1 2019.

Net profit and net profit margins also decreased from fiscal 2016 to fiscal 2017, and turned into a net loss and net loss margin in fiscal 2019 and the first quarter of 2019.

Shares had also “generally underperformed” the rebased FTSE Straits Times All Share Index during the one-year period prior to and including the last trading day.

Indofood Sukses Makmur’s offer price also exceeded the target prices of analysts, and there is no alternative take-over offer as at the latest practicable date of May 3. 

The IFA also pointed out that Indofood Sukses Makmur already has statutory control over Indofood Agri, placing them in a position to “significantly influence”, among others, the management, operating and financial policies of Indofood Agri.

Indofood Sukses Makmur, controlled by Indonesian tycoon Anthoni Salim, already holds a 74.52 per cent stake in the target company. The offer is also conditional upon obtaining control over at least 90 per cent of the target.

The closing date for all acceptances of the offer will be on May 24, 5.00pm. 

Indofood Agri shares closed flat at S$0.275 on Friday.