• Improves offer to A$0.70
• Gets access for due diligence
• Positive but no near-term benefits

Improves offer to A$0.70/share

Wilmar International Limited (WIL), together with 50-50 JV partner First Pacific Company Limited (FPCL), has improved its offer to acquire the entire issued share capital of Goodman Fielder (listed on ASX and NZX); this up to A$0.70/share after having its initial offer of A$0.65 rejected by Goodman’s board as being too low and “materially undervalues” the company.

Board said to have accepted improved offer

However, the board of Goodman has just announced that it will “unanimously” recommend shareholders to vote in favour of the improved offer, which will cost the WILFPCL JV some A$1.37b (as opposed to A$1.3b previously). Separately, with the new offer being some 33% over Goodman’s A$0.525 closing price on 23 Apr, the JV also said it would not be increasing the offer further in the absence of a competing proposal. In view of the latest development, Goodman will provide the JV with nonexclusive access to due diligence of the company over a short and focused period of approximately four weeks

Move will expand WIL’s downstream capabilities

According to management, the deal represents an opportunity for the group to create a leading Asia-Pacific agricultural and consumer staples company. We think that the move makes sense as the range of products will advance WIL’s strategy of broadening its product range to take advantage of its extensive distribution network, especially in China. We also believe that WIL should be able to capitalize on its brand recognition in China to market these Made in NZ food products as not only safer alternatives but at a premium to locallymade brands.

May take some time to see benefits

Having said that, we note that it is not a “done deal” and even if the deal does go through, we believe that it may still take a while for the JV to reap the full benefits; this as it will take time to adapt the products to the Chinese market as well as create consumer awareness. Hence we are not making any changes to our FY14 and FY15 estimates for now. We also maintain our HOLD rating with an unchanged S$3.36 fair value (12.5x blended FY14/FY15F EPS).

Source: OCBC Research - 20 May 2014