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Indonesia: Investors wary of Indofood CBP’s acquisition of noodle maker Pinehill
Investors have dumped shares of processed food giant PT Indofood CBP Sukses Makmur following the company’s decision to acquire instant noodle manufacturer Pinehill Company. The move is viewed as detrimental to Indofood’s financial condition despite the potential boost to its global market outreach, analysts have said.
Indofood CBP’s shares, trading under ICBP on the Indonesia Stock Exchange (IDX), have dropped 7.3 percent since the company announced the acquisition plans on May 22, to Rp 8,900 (64 US cents) apiece on Tuesday. Parent company PT Indofood Sukses Makmur saw its shares, trading under INDF, drop 3.44 percent to Rp 6,300 during the same period.
“Judging from the share price movement, the impact of the [acquisition] is not very favorable as statements have surfaced that the acquisition is mostly financed by debt. Hence, investors are worried about the company’s future finances,” Jasa Utama Capital analyst Chris Apriliony told The Jakarta Post by text message on Monday.
On May 22, Indofood CBP signed an agreement worth US$2.99 billion with Pinehill Corpora Limited and Steele Lake, which own 51 percent and 49 percent of the acquired company, respectively. The former will receive $1.53 billion, and the latter, $1.47 billion.
The financing of the acquisition and its fees will be derived primarily from bank loans of around $2.05 billion, according to Indofood CBP’s information memorandum published on Monday. Meanwhile, the remaining $950 million will come from other long-term liabilities and cash.
Upon completion of the acquisition, Indofood CBP will be the 100 percent owner of Pinehill Company.
Anugerah Mega Investama director Hans Kwee said the large chunk of debt securities could potentially reduce future dividends.
“That is what has led to the negative sentiment,” he added.
On the other hand, Mimi Halimin, analyst of Mirae Asset Sekuritas Indonesia, one of Indonesia’s top brokerage houses, wrote that the potential acquisition of Pinehill Company was “short-term pain, long-term gain”.
“We think that this announcement will draw a negative reaction from investors. We believe that amid these uncertain conditions and the slackening economy, investors will prefer to invest in a company which has a strong balance sheet,” Mimi wrote in a report published on May 28.
“However, on the operational side of the company, we believe that the acquisition could leverage ICBP’s position in the global market, which may potentially boost its volume.”
Indofood CBP announced that Pinehill Company’s business in the manufacturing and distribution of instant noodles in eight countries in Africa, the Middle East and Southeast Europe, was in line with the development and expansion of the company’s core business.
“Therefore, with the proposed transaction, the company will join an elite group of international food companies and become one of the largest producers of instant noodles in the world with a strong market share globally,” the company’s public statement reads.
Pinehill Company has 12 instant noodle-manufacturing facilities located in eight countries with a combined population of approximately 550 million people, and has the capacity to produce approximately 10 billion packs of instant noodles per year.
In addition to that, the company has distribution networks in 33 countries with a total population of around 885 million people.
These markets, which cover a total population of more than three times the population of Indonesia, are growing very rapidly, yet currently have a very low average consumption of instant noodles per capita.
“Thus, the acquisition of the target group is expected to contribute greatly to the future growth of the company,” the company wrote.
Despite the falling share prices, analysts are of the view that the business prospects of the acquisition in the longer term remain attractive.
Hans of Anugerah Mega Investama even noted that the acquisition, which is valued at 23 times price-earnings (PE), was “not that expensive” and “fair value” for such a prospective company.
Indofood CBP and its parent company’s president director, billionaire Anthoni Salim, own 49 percent of Pinehill Corpora shares, making the acquisition an affiliate transaction, as reported by kontan.co.id.
The acquisition will be finalized after it receives approval from shareholders during an extraordinary shareholders meeting (RUPSLB) that will be held on July 15.
Source: https://www.thejakartapost.com/news/2020/06/10/investors-wary-of-indofood-cbps-acquisition-of-noodle-maker-pinehill.html