Tuna processing and distributing giant Thai Union Frozen Products (TUF) has bid to purchase seafood canner MW Brands.TUF and several private equity firms are bidding for the Paris-based global producer of canned seafood, tuna, salmon, mackerel and sardines. The processor and distributor is conducting financial due diligence on MW Brands. The bid deadline comes at the end of June.
TUF has a favourable chance of winning the auction, as the company has been successful in the past with large acquisitions such as the US-based Chicken of the Sea, according to KGI Securities (Thailand), Bangkok Post reports.
MW Brands is owned by New York-based Trilantic Partners, formerly the private equity arm of the now defunct Lehman Brothers. It purchased MW Brands from HJ Heinz (HNZ) in 2006 for EUR425 million (US$522 million).
MW Brands is one of the leading European seafood businesses; it sells its products mainly in the UK, France, Italy, Ireland and the Netherlands. John West canned fish, Petit Navire and Mareblu canned tuna and Hyacinthe Parmentier canned sardines are among its brands.
Although TUF's main business is tuna, it also processes and distributes shrimp, squid and other seafood products. If the Thai company acquires MW Brands, the former may have a better chance of breaking into the European Union (EU) market, and MW Brands product sales could help improve TUF's margins, said KGI.
MW Brands' EBITDA margin was high at 16.9 percent last year, exceeding TUF's 8.6 per cent due to sales of more value-added products in the EU. KGI believes TUF would employ the same strategy it used with Chicken of the Sea: doing most of its processing in Thailand to benefit from cost advantages and then exporting the products.
TUF would achieve greater economies of scale and better negotiating power with suppliers, suggesting enhanced margins in general, the brokerage said.
MW Brands has a low level of debt that is estimated at EUR188 million (US$231 million). The company should not have a problem servicing its debt given its profitable margins, according to KGI.
Based on TUF's 1998 acquisition of Chicken of the Sea, KGI expects the Thai firm to raise funds by issuing debt and raising the amount of common shares. MW Brands' enterprise value including debt is estimated at EUR650 million (US$799 million) to EUR700 million (US$860 million), or EUR488 million (US$600 million) without debt.
Despite the considerable size of the deal, KGI believes TUF can finance the acquisition as a result of its low gearing ratio of 0.6 times as of the end of Q1 2010. If it funds the acquisition with 100 percent debt, TUF's gearing ratio is estimated to grow to 1.6 times, the brokerage told.
TUF shares on Friday closed the Stock Exchange of Thailand at THB45 (US$1.39), unchanged, in trade worth THB49.33 million (US$1.47 million). The firm had a record Q1 with a 27 percent jump in net profits, consistently maintaining a high margin by focusing on value-added products.
Source: Fish Information and Services (FIS)
