Gokongwei devours Snack Brands Australia

Universal Robina, the Gokongwei family’s flagship F&B company, is buying the Australian snack business for $461 million.

Universal Robina has taken another bite out of the Australasian market by snapping up Snack Brands Australia for A$600 million ($461 million), as the Philippine food and beverage giant looks south for new drivers of growth.

The Manila-listed company "plans to create a wider footprint in the Oceania region with Snack Brands Australia providing a solid anchor in the highly competitive Australian fast moving consumer goods and retailing market", it said in a statement on Wednesday.

A core part of the Gokongwei family empire, Universal Robina says the acquisition of Snack Brands Australia is “completely synergistic” with Griffin’s Foods, the New Zealand snack food firm it bought for NZ$700 million ($609 million) two years ago.

The deal will see the Philippine company take over Consolidated Snackfoods, the holding company of Snack Brands Australia, as well as its two manufacturing facilities in Sydney.

It gives Universal Robina control of Australia's second biggest manufacturer of salty snacks, along with notable of brands including Kettles, Thins, CC’s and Cheezels.

Snack Brands Australia has a close to 30% share of Australia’s salty snack manufacturing business. Over the last four years, the firm’s bottom line saw a compound annual growth rate of 32.6%, while sales increased 7.4%.

Overseas expansion

The acquisition of Snack Brands Australia confirmed Universal Robina’s strategy of expanding outside its core Southeast Asian markets.

Not only does the expansion allows it to access the vast Australian market, home to nearly 25 million people, but venturing into the developed market also brings the prospect of stable revenue as compared to emerging markets in Southeast Asia.

“Our international business operates in the developing countries in the Asean [Association of Southeast Asian Nations] where the macro-environment was very challenging,” Lance Gokongwei, Universal Robina’s CEO and the only son of company founder John Gokongwei, said in the company’s 2015 annual report.

Sales in Vietnam, which accounted for one-third of the firm’s international sales, were severely hit after the Ministry of Health ordered the company to recall its C2 green tea and Rong Do energy drink products due to alleged excessive lead content. The Indonesia business remains unprofitable, while its Thailand sales grew only 2% in the last quarter as economic weaknesses continued to weigh on consumer spending.

As such, the expansion into Australia will provide a stable income stream for the business in the long-run, though there are likely to be challenges involved in entering the Australian market – much like those Universal Robina encountered after buying Griffin's.

In its annual report, Universal Robina said Griffin’s Foods had expanded its market share in New Zealand last year but the business continued to face difficulties from higher trading terms and discounts, as well as private label offerings.

Terms

The A$600 million enterprise value for Snack Brands Australia, which is carrying no cash or debt, equates to 23.2 times the firm’s full year post-tax profit of A$26 million in the latest financial year. The valuation represents a slight discount to Universal Robina’s 26.9 times price-to-earnings on a trailing twelve-month basis.

Mike Liwanag, Universal Robina's head of corporate strategy and development, said the company did not hire any investment bank to advise on the deal.

Universal Robina is buying the Australian business at a time when the currency remains weak. The Australian dollar has depreciated 12.4% against the Philippine peso over the last three years, implying that it is buying at a discount now compared to 2013 when the company started to look for strategic acquisition options.

The Philippine company will finance the acquisition with long-term debt, according to the company statement. The deal is expected to close by September 30, but completion is subject to Australian Foreign Investment Review Board approval.

Philippine companies are not known for owning Australian food and beverage brands. Juice maker Berri is one of the few Australian F&B business in Filipino hands now, having bought by San Miguel for $169 million in 2005.

San Miguel also took over Australian dairy firm National Foods in 2005, but the business was sold on to Japan's Kirin Holdings two years later.

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