Malaysian conglomerate Sime Darby on Thursday made a £1 billion ($1.7 billion) offer for London-listed New Britain Palm Oil, which owns huge swathes of plantation land in Papua New Guinea, and has secured approval from the country's prime minister.
Regulatory hurdles are increasingly a key challenge to closing deals, as was the case for New Britain's largest shareholder, Malaysian investment firm Kulim.
Kulim, which holds a 49% stake in New Britain Palm Oil, had last year made a partial offer to acquire an additional 20% stake in New Britain Palm Oil. However, this offer was thwarted when Papua New Guinea’s Minister for Trade, Commerce and Industry approved an amendment to the takeover code, which effectively blocked Kulim's partial offer.
In a statement to the Malaysian exchange, Sime Darby said that Peter O’Neill, Papua New Guinea prime minister, has indicated that its proposed acquisition will not be contrary to Papua New Guinea’s national interest. New Britain Palm Oil is the second largest employer in Papua New Guinea after the government.
Sime Darby had previously been in talks to acquire Kulim's share but walked away from that in early October. Other bidders that had been interested included Felda, KLK and Wilmar, according to one person familiar with the matter.
Sime Darby's offer is conditional to receiving acceptances of not less than 51% of the voting rights of New Britain Palm Oil. It has offered £7.15 per share, a premium to the £5.5 that Kulim had offered and a steep 85% premium to Wednesday’s price. According to another source familiar with the matter, Sime Darby will be funding the offer with 20% cash and the remainder with debt.
The acquisition will give Sime Darby, one of the world’s largest plantation companies, produces about 5% of the global crude palm oil output, a significant landbank, adding to its existing plantations in Malaysia, Indonesia and Liberia.
New Britain Palm Oil is the largest sugar and beef producer in Papua New Guinea and has more than 78,000 hectares of planted palm oil estates.
According to Thomas Soon, a Kuala-Lumpur analyst with AmSecurities, the offer price values New Britain at about 22 times estimated financial year 2015 earnings. "Sime Darby is paying a steep price for it," Soon told FinanceAsia.
In contrast, Sime Darby is trading at only about 14 times its forecast financial year 2015 earnings.
Soon added that Sime Darby had told analysts that Papua New Guinea government agencies won't be selling its stake and in fact plans to raise it, at a briefing on Thursday.
“The national agency that owns 18% would like to up that to 30%,” said Soon. "This provides Sime Darby [the opportunity] to get more land from PNG, greenfield perhaps, and the way it can be done is through the injection of land and they will be given some shares,” he added.
Sime Darby, a Malaysia-based conglomerate, has businesses in five core areas, namely plantations, property, industrial, motors and energy and utilities. It is one of the largest companies listed on the Bursa Malaysia with a market capitalisation of about $18 billion.
Sime Darby’s history dates back more than a century to a time when pioneering English planters established rubber plantations in Malaya, most of which were later converted to palm oil. Sime Darby came to be when European businessmen William Sime, Henry d’Esterre Darby and Herbert Mitford Darby established Sime, Darby & Co in 1910.
Citi is advising Sime Darby. Accounting firm BDO is advising New Britain Palm Oil. RHB advised Kulim.