Takeover bid for Tegel

A takeover is looming for underperforming chicken producer Tegel after big Filipino poultry group Bounty Fresh Foods gave notice of its intentions to Tegel’s board yesterday.

The proposed offer price of $1.23 a share is a 50% premium on Tegel’s last closing price of 82c but is still well below the $1.55 price paid by investors in Tegel’s May 2016 float.

The price values Tegel at $437.7 million.

Tegel’s 45% shareholder, funds associated with private equity firm Affinity Equity Partners, has agreed to sell its stake to Bounty.

In a statement to the NZX, Tegel said it had appointed Goldman Sachs to advise on the takeover notice.

“While noting the draft offer price represents a 50% premium to the $0.82 close price of Tegel shares on 24 April 2018 on the NZX, the independent directors consider it too early to comment on the draft offer at this time. In particular, the independent directors do not yet have full details in respect of Bounty’s proposed strategy for Tegel, which is something we are focused on.”

The takeover notice entitles Bounty to make a takeover offer between May 11 and May 28.

Under the terms of the notice, Tegel can pay a dividend of up to 4.1c a share without affecting the offer price.

Bounty Fresh is a privately owned company founded by businessman Tennyson Chen in 1986.

The takeover vehicle is New Zealand company Bounty Holdings New Zealand, a subsidiary of Bounty Fresh company Inoza Foods.

In a statement, Mr Chen said Tegel had potential to expand into international markets, “particularly the Philippines where Bounty Fresh Group’s sales and distribution networks are extensive.”

“We believe our Group is naturally aligned to Tegel, and our offer is motivated by a desire to further grow the Bounty Fresh Group beyond the Philippines. Our intention is to acquire 100% of Tegel’s shares on issue, but we also welcome any shareholder that wishes to remain invested in the company’s future alongside us.”

The statement said Bounty Fresh had annual revenue in 2017 of more than $750m.

“It operates a farm‐to‐market strategy, meaning it controls and manages the entire supply and production chain. It also has significant operations in egg production, hog farming, feed milling and the takeout segment in the Philippines. In the last six years it has established over 1,500 company‐owned rotisseries take‐out stores under three brands, including Chooks to Go.”   

Deutsche Craigs is advising Bounty Fresh on the takeover.

In August 2016 Tegel announced it had secured its first order from the Philippines. The buyer for its value-added processed product was a large food services operator, it said.

“Market access was opened for New Zealand poultry in 2016, and Tegel has been working on an initial contract during this time. The Philippines is one of Tegel's target markets as part of its export growth strategy. Tegel expects continuing growth within this region.”

Bounty Fresh managing director and part owner Kenneth Cheng is a director of the New Zealand takeover bid entity.

Tegel has disappointed investors after its initial public offer and in March issued a profit warning, saying its expected profit for the year to April 2018 would be $25-27m, down from $31m in 2017.

Tegel chief executive Phil Hand cited “recent one-off events” as contributing to the result, including damage to its processing facilities from Cyclone Gita.

"However, despite these challenges, the impact on our customers has been minimised as a result of our business strategy of running three independent fully integrated sites.

“Our domestic business is solid, our new product development programme continues to deliver and our value-added sales are generating better margins. Tegel continues to maintain its leading domestic position with a focus on expanding existing export markets through new channels, products and customers,” Mr Hand said.

The proposed takeover is subject to several conditions, including a requirement that Tegel’s full year results are not more than 10% below its March guidance for underlying earnings of $70m and net profit of $25m.

The earnings condition also relates to any announcement on expected earnings for the half year to October 2018, which are required to be no more than 10% below last year’s half year.