The Tnuva deal, which was very good for the sellers – Apax Partners and Mivtach Shamir – continues to emerge as problematic, to say the least, for the buyer – Chinese company Bright Food. Because of a steep fall in value of the dairy products company, Bright Food has recently had to inject capital as part of a change in the structure of the finance that it took to carry out the acquisition.
Bright Food owns 77% of Tnuva, which it bought from Apax Partners and Mivtach Shamir in 2015 at a company valuation of NIS 8.6 billion, which less than two years later has turned out to be much higher than the economic value of the company, now put at just NIS 5 billion. This is in the wake of substantial erosion in the profitability of Tnuva, which has seen products placed under price controls, and the opening of the Israeli market to imports of products in areas it used to dominate, such as semi-hard cheeses.
The deal between Bright Food and Apax Partners and Mivtach Shamir was completed at the end of the first quarter of 2015, and that same year "Globes" reported that Bright Food was angry about over-optimistic presentations on Tnuva's position. The problems have not changed since then from the point of view of the buyers, and if anything have worsened.
Bright Food required to improve collateral
In order to complete the Tnuva acquisition, Bright Food took a NIS 2 billion loan granted by a consortium of Israeli lenders, now led by Bank Hapoalim (TASE: POLI). Because of the fall in Tnuva's value, Bright Food is being required by the lending consortium to improve the structure of the collateral against the loan, which mainly consists of the Tnuva shares it holds, the value of which has slumped.
Following this demand, the loan has been reduced from the original NIS 2 billion to NIS1.1 billion, while at the same time Bright Food received from some of the members of the consortium a fairly short-term loan of NIS 700 million against strong bank guarantees. In addition, Bright Food injected capital amounting to NIS 150-200 million. No response was obtainable from Bright Food on the report.
And what about Tnuva? The company's board recently approved a five-year plan presented by CEO Eyal Malis under which the Israeli group will expand its investment in international markets – in the Munna cottage cheese venture in the US and in the future by penetrating the Chinese market.
During Prime Minister Benjamin Netanyahu's recent visit to China, a bilateral agreement on dairy products was signed between Israel and China that represents the basis for exporting such products to China. Alongside this, the Tnuva board approved a NIS 400 million investment in the company's production lines and computer systems in Israel.
In this context, the chairman of Bright Dairy, who is also chairman of Tnuva, Zhang Chong Jian said, "We are aware of the difficulties with which Tnuva is contending, and we choose to stay in the company. Our attention is devoted to Tnuva's future, and we are strategic investors for the long term." He added that beyond the NIS 400 million investment approved for the current year, Bright Food intends to expand its investment in Tnuva in order to setup a logistical center, expand the Soy Magic factory, and for Tnuva's technology project Ba'emek Advanced Technologies Ltd. "Our aim is to maintain Tnuva as a world leader in technology," he said.
Published by Globes [online], Israel business news - www.globes-online.com - on April 13, 2017
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