The assets have been bought from Burns Philp, an Australian company owned 54% by New Zealand entrepreneur Graeme Hart, as Hart offloads assets to pay down debt and boost his cash coffers.The last big sale from Burns Philp was the A$2.12 billion listing of Goodman Fielder in December last year.
At the time of the IPO, Hart decided not to include the cereals and snacks business in the offering and to seek strategic owners for these assets elsewhere.
On Wednesday, Nestle and its joint venture with General Mills called Cereal Partners Worldwide (CPW) came out on top. Nestle will take Uncle TobyÆs snacks and soups business lifting its Australian market share to 40%, while CPW acquires the breakfast cereals business lifting its market share to 21%.
Other contenders in the bidding war were said to be Pepsico, Kellogg, Sanitarium and private equity players.
However, NestleÆs buyside advisor Citigroup says private equity players would have been unable to justify the price. ôThe private equity firms have so much money at the moment that they are looking at everything in the industrials space, particularly big brand assets like Uncle TobyÆs,ö says Peter Bacchus, who heads resources and diversified industrials at Citigroup.
ôBut the synergies that Nestle will gain from the acquisition are so great that the private equity firms were unable to compete in the sale. These firms are always looking for an exit and need to be able to trim costs. And frankly, Graeme Hart had already trimmed the business right down.ö
In 2005, Uncle TobyÆs reported earnings of A$79 million on sales of A$400 million. The sale price paid by Nestle represents a multiple of 11.3 times earnings, which is considerably higher than the 9x paid by investors in the Goodman Fielder float.
But, says Bacchus, it is difficult to compare the two assets. ôThe cereals and snacks assets are very different in nature and offer a different proposition. The brands that have been bought in this deal are the number one or number two brands in their category.ö
Bacchus says the price appears high now that Uncle TobyÆs earnings have softened. ôThe latest performance release has been softer than expected due to seasonality and some operational matters that need sorting out. Nestle is confident that it can create synergies with the new brands.ö
The sale of Uncle TobyÆs and the Goodman Fielder IPO are testimony to Burns PhilpÆs successful transformation of a beleaguered company into a profitable well-managed food conglomerate. Graeme Hart bought the Burns Philp business for A$300 million in 1997 and then launched a leveraged and hostile takeover of Goodman Fielder in 2003.
Burns Philp now holds cash of about A$1.6 billion and is said to be looking for a buyer of its New Zealand salty snacks business called Bluebird worth between A$200 million and A$300 million.
Bacchus says Nestle is unlikely to be interested in this asset.
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