Three weeks before the final date for closing the deal for acquisition of a controlling share in Tnuva Food Industries Ltd. by Chinese corporation Bright Food, substantial differences between the parties on the price are emerging, sources inform "Globes". The sources added that Bright Food recently demanded a reduction of hundreds of millions of shekels or more in the price for the deal, which Apax Partners is refusing as of now. The parties are negotiating in the matter, and it is believed that a crisis could result.
How much is Tnuva worth?
In May 2014, Bright Food signed an agreement for the acquisition of a 56.1% controlling interest in Tnuva from Apax at a value of NIS 8.6 billion for Tnuva. The kibbutzim (collective settlements) and moshavim (cooperative settlements) decided to take part in the deal, and Mivtach-Shamir Food Industries Ltd. (TASE:SHAM), which owns 20.7% of Tnuva, is still negotiating with Bright Food over its terms for joining the deal.
According to the original timetable, Bright Food was scheduled to complete the acquisition on August 21 this year. Two days before this date, however, Mivtach-Shamir reported to the Tel Aviv Stock Exchange (TASE) that the completion date would be postponed by 45 days until October 5, 2014. It was further reported that if Bright Food does not obtain the necessary regulatory approval in China by that date, each side will be entitled to postpone the completion date by three more months until January 5, 2015.
Acquisition of control in Tnuva is part of the Chinese government-owned company's strategy. Bright Food has acquired a number of food companies in recent years, and is looking for more. Bright Food, which failed in an attempt to acquire global company Yoplait, wants to expand its international business, with many additional investments being expected. From this standpoint, the acquisition of Tnuva fits in with Bright Foods' strategy.
The question of Tnuva's value is not new. For a long time before the negotiations with Bright Food, this subject was the cause of a sharp dispute between Apax, Mivtach-Shamir, and the kibbutzim. Apax said the company was worth NIS 8.5 billion, while its partners in Tnuva, which wanted to acquire Apax's stake, said it was much lower. A 2012 valuation by Giza Even Singer commissioned by Mivtach-Shamir estimated the value of Tnuva's business at NIS 5 billion, compared with NIS 8.3 billion at the end of 2010, a precipitous 40% drop. Actually, this valuation asserted that the 2011 "cottage cheese boycott" had greatly reduced Tnuva's value. When the deal for the sale of control to Bright Food at an NIS 8.6 billion value was signed, preceded by negotiations according to this value, it was therefore a big surprise.
What woke up the Chinese?
What caused Bright Food to wake up now and ask for a lower price in the deal? Sources said there were two reasons. One is Tnuva's first half financial statements, which showed a fall in revenue (3.8% to NIS 3.45 billion) and operating profit margin, affected among other things by the government's decision to introduce price controls for additional Tnuva dairy products, including white cheese and sweet cream, and by a decrease in sales of eggs, whose price is already controlled, and which yields a relatively low profit, and beef. As first reported in "Globes", Tnuva's sales of eggs to the marketing chains were down 31% over the past year in consumer prices. At the same time, its share of this market plummeted from 46.3% to only 32%. Tnuva preferred canceling the discounts it customarily granted to the marketing chains on purchases of eggs, even at the price of losing market share.
Despite its loss of revenue, Tnuva managed to improve its gross profit, thanks to lower input prices, with its gross profit margin rising from 26.8% to 28.5% in the first half of the year.
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2014
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