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Wilmar’s Bid For Goodman Fielder: Value Over Price
Tradeable, Tradeable Ideas | 22 May 2014
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By: Lim Si Jie
Articles (169) Profile
  1. Goodman Fielder’s board has agreed to back the takeover bid from Wilmar and First Pacific which values Goodman Fielder at A$1.37 billion.
  2. Wilmar wants to buy Goodman Fielder in a bid to to create a leading Asia-Pacific agriculture and consumer staples company.
  3. Wilmar pays the right price for an intangible brand name that worth more than what it is valued at.

Wilmar Made New Offer For Goodman Fielder
Wilmar will now pay A$0.70 a share to take over the Australasian food ingredients maker, an increased offer from its initial bid of 65 cents a share. The board of Goodman Fielder will back a A$1.37 billion takeover bid by Wilmar and Hong Kong-listed investment firm First Pacific Co in the absence of a better offer.

Since the initial approach from Wilmar and First Pacific, Goodman Fielder’s board has been focused on generating the best outcome which maximises value for its shareholders.

And now Goodman Fielder believes that the revised proposal from Wilmar and First Pacific maximizes value for its shareholders, and thus have agreed to back the sale (unless another investor is willing to outbid Wilmar).

Goodman Fielder A Struggling Food Maker In Recent Years
Goodman Fielder is Australasia’s leading listed food company. They are engaged in the manufacturing, marketing and distribution of food ingredients and consumer branded food, beverage and related products.

The company has an excellent portfolio of well-known consumer brands in some of Australia’s largest grocery categories, including Meadow Lea, Praise, White Wings, Pampas, Mighty Soft, Helga’s, Wonder White, Vogel’s (under license), Meadow Fresh and Irvines.

Goodman's products are brand names well recognised. But will they gain traction in China?
Goodman’s products are brand names well recognised. But will they gain traction in China?

Why Does Wilmar Want To Buy Goodman Fielder?
Australian and New Zealand food companies have become increasingly attractive to investors as countries position themselves to provide Asia’s rapidly growing middle-class with quality food.

A lot of Wilmar’s interest in Goodman Fielder is to meet this demand for quality food in Asia Pacific. Wilmar is aiming to create a leading Asia-Pacific agriculture and consumer staples company to capitalize on its strong distribution channels in China.

Just imagine the symbolic Meadow Lea margarine distributed all over Asia Pacific.

Wilmar has a very strong and mature distribution channel in Asia Pacific, especially in China. This would allow Wilmar to tap the growing demand for quality food in the region. Especially in light of recent tainting scandals surrounding local food products.

Is Wilmar Paying The Right Price For Goodman Fielder?
Goodman Fielder’s net asset value (NAV) per share is valued at A$0.79. Wilmar is offering to buy Goodman Fielder at A$0.70. However, a large portion of this NAV computation is due to the goodwill that is allocated to the brands under Goodman Fielder.

Goodwill has been allocated to six individual cash generating units (CGUs) for impairment testing as follows:

Allocation of Goodman's goodwill
Allocation of Goodman’s goodwill

It may seem that Wilmar is paying in excess of the true valuation of Goodman Fielder. But I beg to differ. The goodwill is allocated to the brand names and is considered to have an indefinite useful life.

One of the world’s greatest investor, Warren Buffett, once said, “Price is what you pay. Value is what you get”. Branding is something that cannot be bought even with money. Just think of Warren Buffett’s favourite, Coca Cola.

The brands which Wilmar are buying are worth more than what they are paying for given that Wilmar is able to position itself in terms of branding and consumer confidence. This will then support Wilmar’s attempt to break into the Chinese market to compete with locally produced products.

Still #Bullish
I continue to hold my bullish opinions on Wilmar from my previous coverage of Wilmar when Goodman Fielder rejected Wilmar’s initial bid. Now that Wilmar had its bid accepted, I don’t see what is holding Wilmar’s share price back.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Wilmar Int'l  3.800 -0.04 -1.04%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More

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