20131014-Maybank_KERPL-Del_Monte_Pacific_Go_Bananas__14页_427kb

Del Monte Pacific Acquisition Summary

Core Information

• Company: Del Monte Pacific (DMPL)
• Transaction: Acquiring the branded consumer business of Del Monte Foods, which was previously owned by private equity firms KKR, Vestar, and Centerview.
• Deal Value: USD1.675 billion
• Funding: DMPL contributes USD745 million through a mix of equity and debt, while USD930 million of debt is assumed by the target business.
• Valuation: 9.4x EV/EBITDA and 12.4x PER, which is more favorable than the recent Lucozade/Ribena transaction (13.5x EV/EBITDA).
• Transaction Closure: Expected by 28 February 2014, following an Extraordinary General Meeting (EGM).
• Major Shareholder: Nutri-Asia owns 67% of DMPL and has already committed to support the transaction.

Stock Information

• Share Price: SGD0.905 (PHP30.0)
• Target Price: SGD1.30 (PHP45.0)
• Shares Issued (m): 1,296.6
• Market Cap (USD m): 941.8
• 3-mth Avg Daily Turnover (USD m): 0.3
• ST Index: 3,179.71
• Free Float (%): 33
• ROE (%): 12.9
• Net Gearing (%): 68
• BVPS/shr (USD): 0.20
• Interest Cover (x): 7.7

Key Transaction Points

• Deal Type: Leveraged buy-out (LBO)
• Target Business: Del Monte Foods’ branded consumer business, which includes canned and fresh pineapples, tropical mixed fruits, and tomato-based products.
• Historical Performance:
  • FY13 sales: USD1.83 billion
  • FY13 adjusted EBITDA: USD178 million
  • FY13 net profit: USD135 million
• Funding Breakdown:
  • Existing credit lines: USD80 million
  • Preference shares: USD350 million
  • New common shares: USD150 million
  • Major shareholder loan: USD165 million
  • Debt financing: USD930 million
• Post-Transaction Valuation:
  • Market Cap (USD m): 1,089.0
  • New shares issued (m): 207.2
  • Total shares post-transaction (m): 1,504.2
  • Post-transaction PER: 21.5
  • Post-transaction EV/EBITDA: 10.6

Synergies and Growth Potential

• Revenue Synergies:
  • Products from the US can be sold in DMPL’s existing markets and vice versa.
  • Potential to leverage the Del Monte brand globally and expand into untapped markets like the US Filipinos and South America.
• Cost Synergies:
  • DMPL is already a supplier of canned pineapples to the target business.
  • Utilization of DMPL’s 23,000-hectare plantation for other fruits.
  • Administrative cost savings.
• Growth Opportunities:
  • Expansion into fruit and vegetable juices, which is a growing market.
  • Plastic fruit-cup business.
  • Fresh fruit business using the S&W brand.
  • South America, where the target business has limited presence.

Performance and Financials

• Revenue Growth:
  • FY13: USD525 million
  • FY14F: USD572.1 million
  • FY15F: USD627.6 million
• EBITDA Growth:
  • FY13: USD70.8 million
  • FY14F: USD82.7 million
  • FY15F: USD104.3 million
• Recurring Net Profit:
  • FY13: USD33.9 million
  • FY14F: USD43.2 million
  • FY15F: USD59.0 million
• Recurring EPS (SG cents):
  • FY13: 2.6
  • FY14F: 3.3
  • FY15F: 4.6
• DPS (SG cents):
  • FY13: 2.0
  • FY14F: 2.5
  • FY15F: 3.4
• Dividend Yield (%):
  • FY13: 2.9
  • FY14F: 3.7
  • FY15F: 5.0
• ROE (%):
  • FY13: 12.9
  • FY14F: 15.7
  • FY15F: 20.4

Case Scenarios

Peer Comparison

Key Highlights

• Strategic Move: This acquisition transforms DMPL into a global food company, enhancing its brand portfolio and market reach.
• Positive Outlook: The transaction is expected to be accretive, with significant upside for shareholders due to the potential to reverse declining EBITDA and improve margins.
• Execution Risk: While high gearing is a concern, the stable cash flow of the target business and the support from Nutri-Asia reduce repayment risk.
• Long-Term Potential: The combined entity is expected to benefit from growth in the US juice market, fruit-cups, and South America.
• Valuation Justification: The transaction is valued at a favorable EV/EBITDA and PER compared to similar deals, indicating good value for investors.

Conclusion

The acquisition of Del Monte Foods’ branded consumer business by Del Monte Pacific is a transformative deal that significantly expands DMPL’s global footprint and brand portfolio. Despite the high gearing, the stable cash flow and strategic fit between the two entities suggest a positive outlook. The transaction is expected to be accretive, with the potential for substantial revenue and profit growth over the next few years. The reiteration of a "Buy" rating with a revised target price reflects the strong confidence in the deal's long-term value creation.