Cargill set to lock horns in fight over Nutreco
Emiko Terazono
Fish and animal feed group at centre of potential bid battle
L
et battle commence. The announcement of an agreed offer for Dutch animal and fish feed group Nutreco has pitted one family-backed company, SHV of the Netherlands, against another – Cargill of the US.
For those who have not been following the Dutch saga closely, it started with a recommended €2.7bn cash deal between Nutreco and SHV at €40 a share announced in October.
This drew criticism from Dutch shareholders and analysts as undervaluing the company. Nutreco said there had been no competitive auction for the business, but according to its management, the group had come to the conclusion that it was an attractive offer thanks to opinions from its advisers, and it had done its fiduciary duty.
SHV, which has a large cash pile following a series of disposals, is said to have looked far and wide for a long-term investment and landed on Nutreco as a candidate, approaching its management four weeks before the recommended offer was announced.
The announcement took industry executives and analysts by surprise as SHV, a 118-year-old gas to retail conglomerate run by the Fentener van Vlissingen family, has very little to do with fish and animal feed.
Leading shareholders have questioned management’s decision, with institutional investor APG, which owns 10 per cent, and NN, holding 7.5 per cent, sending a stinging joint letter to Nutreco’s board on November 3 about the rationale, process and valuation of the SHV transaction.
For the letter and Nutreco’s response, click here.
Gerard Rijk, analyst at SNS Securities and among the most vocal opponents of the SHV deal, argues that Nutreco was not valuing the potential margin growth of its animal feed business.
Over the past week, an informal approach from Cargill – which itself is 150 years old next year – and Permira, the private equity group, at €43.20 a share was rejected by the Nutreco board. In response, SHV promptly raised its bid to €44.50.
The idea of the Cargill-Permira offer is for the companies to split Nutreco up, with the former taking the fish feed business and the latter taking the animal feed business.
The move makes sense strategically. Permira has a good successful record with animal feed. It sold Provimi to Cargill for €1.5bn in 2011. Cargill also has a fish feed business and could draw synergies by buying the Nutreco fish feed operations.
Furthermore, Cargill could not buy the whole of Nutreco without triggering competition issues, say analysts.
The question is whether there will actually be a battle, or whether investors and hedge funds hoping for an increase in Cargill and Permira’s indicative offer are waiting in vain.
Given the agreement between Nutreco and SHV, only a competing offer that is 8 per cent higher will be considered, which takes the next bid from Cargill and Permira, if they choose to do so, to €48.
To date, Cargill’s purchases have always had the acquiree’s management on side. In other words they are agreed, or recommended deals. Before Cargill made an offer for Provimi, it spent a lot of time and effort getting to know the company and its management. At one point it had hundreds of people working on the deal, say people familiar with the process.
On Nutreco, Cargill has not achieved the same level of comfort.
Nevertheless, no bidder in an M&A deal makes an approach without thinking about the next step, so you can never rule out a higher offer from the contenders.
But those who know the feed industry suggest their room to manoeuvre is limited by the fact Permira has no other animal feed operation and therefore cannot offer a higher price. Cargill may be able to offer a bit more but it can only do it for the fish feed business.
Both SHV and Cargill will be taking the long-term investment view, but in this case, SHV may have the upper hand. “It’s unlikely that SHV will let it go for €300m-€400m,” says one animal feed industry specialist.
Even if Cargill and Permira do increase their offer, their chances of outbidding SHV may be slim.