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Lapse of buyout offer for Indofood Agri casts investors into uncertainty

Investors were hoping for better offer; it's unknown now whether Indofood Sukses Makmur will relaunch offer, or if that will be better

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Indofood Sukses' buyout offer of 32.75 Singapore cents a share for IndoAgri had lapsed on Tuesday evening, with final acceptances of 88.08 per cent falling short of the more-than-90-per-cent needed for the deal to proceed.

Singapore

ANALYSTS were surprised that the buyout offer by the maker of Indomie instant noodles for mainboard-listed Indofood Agri Resources fell through, because they had seen it as an opportunity for retail investors to exit from a languishing stock.

When the market opened on Wednesday, IndoAgri's counter tumbled; it was down 11.11 per cent in the final hour of trading; it ended the day at 28 Singapore cents, with 427, 200 shares having changed hands.

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Indofood Sukses' buyout offer of 32.75 Singapore cents a share for IndoAgri had lapsed on Tuesday evening, with final acceptances of 88.08 per cent falling short of the more-than-90-per-cent needed for the deal to proceed.

Retail investors had preferred to hold out for a better offer, but now it is uncertain whether Indofood Sukses Makmur will relaunch an offer, or if that offer would be a better one, analysts say.

The offeror and its concert parties will now own 74.53 per cent of IndoAgri after offer shares are returned to shareholders who had accepted the offer.

Earlier, some analysts had recommended that IndoAgri shareholders accept the offer, citing the company's negative earnings trend and low trading liquidity.

In April, DBS equity analysts William Simadiputra and Lim Rui Wen recommended that investors accept the offer, initially at 28 Singapore cents per share.

They wrote: "Though the offer is at the lower end of acquisition multiples for plantations, ... earnings in two out of the last three quarters had entered negative territory, mainly on weak downstream and upstream margins."

When Indofood Sukses raised its offer to 32.75 cents a share in June, the analysts reiterated their views.

Independent financial adviser Novus Corporate Finance described the offer as "not fair but reasonable".

It said the buyout offer was "not fair" because the new offer price still represented a steep discount to IndoAgri's unaudited net asset value per share of 79.8 Singapore cents as at March 31.

But the offer was "reasonable" as the group's gross profits and gross profit margins had been declining.

The Business Times understands that Indofood Sukses was disappointed by the outcome and had felt the revised offer was already a meaningful improvement from the original.

But retail investors were holding out for a better offer, judging from some of the comments on investment forums. Others were looking to IndoAgri's management to revive the firm instead.

Shareholder Mano Sabnani said: "The earnings are depressed, no doubt, but it doesn't mean it's a good time to buy out the minority.

"Management has a duty to look at why earnings are so depressed. If you look at other companies like Bumitama Agri and First Resources, which have similar assets like plantations and are performing better, it seems possible that management can extract more returns from their assets."

It remains to be seen whether Indofood Sukses will launch a new offer - the offeror must wait at least 12 months before relaunching - or whether that offer would better.

Indofood Sukses has yet to issue directives, BT understands.

David Blennerhassett, an analyst with Ballingal Investment Advisors who publishes on Smartkarma (a digital marketplace providing investment insights into Asian markets), thinks a lower offer price in the future is possible.

He said: "After 12 months, Indofood Sukses can propose whatever price they like, provided it didn't buy any additional shares in the interim.

"A lower price now doesn't seem like a great idea at the moment, but in 12 months, who's to say the share price wouldn't have fallen to S$0.10/share - and Sukses offers S$0.20?"

Meanwhile, investors holding on to IndoAgri's stock could keep an eye on whether IndoAgri can expand its profitability performance via downstream margin maximisation, or via a recovery of crude palm-oil prices. Such factors may help lift IndoAgri's counter, say analysts.