• Reduced A$0.675 offer
• Scheme meeting in Nov 2014
• Positive in medium term

New offer of A$0.675/share

Wilmar International Limited (WIL), together with 50-50 JV partner First Pacific Company Limited (FPCL), will now pay A$0.675/share to for all Goodman Fielder (listed on ASX and NZX) shares not already owned by the JV. Recall that WIL had to improve the offer to A$0.70 after the initial A$0.65 offer was rejected by Goodman’s board as being too low and “materially undervalues” the company.

Board conditionally agreed to scheme

However, the Goodman directors have now unanimously recommended that shareholders vote in favour of the scheme in the absence of a superior proposal, subject to an independent expert opining that the scheme is in the best interest of shareholders. If the scheme does proceed, the WIL-JV will need to pay A$1,057.4m (~US$994.7m) as opposed to A$1.37b under the revised offer. The scheme meeting is expected to be held in Nov 2014.

Move will expand WIL’s downstream capabilities

As before, we believe 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 locally-made brands.

Maintain HOLD

Separately, the concerns over commodity financing fraud in China have forced banks to impose more controls in the country’s massive commodity financing business, leading to credit drying up for most but large firms and state-owned companies. While WIL may feel some of the impact, we believe that the tighter credit conditions would weed out a lot of the financial speculators in the oilseeds & grains, thus improving crush margins for genuine importers like WIL in the medium term. But for now, we maintain our HOLD rating with an unchanged fair value of S$3.36 (12.5x blended FY14F/FY15F EPS).

Source: OCBC Research - 7 Jul 2014