Coffee, foods and condiments supplier Cerebos' cash bid for health and beauty care manufacturer Comvita is offering a 25% premium on its share price of the past month.
A battle now looms for the next two months for control of Comvita, which has taken manuka honey from being a byproduct giveaway animal food to an export selling for up to $US1 ($NZ1.25) per gram in its health and beauty products.
Comvita's directors immediately responded to the Cerebos bid to claim it was undervalued and labelled it "unsolicited, unwelcome and opportunistic".
They urged shareholders not to sell until an independent appraisal was issued.
Cerebos might well have its work cut out, with one founder holding a blocking 11% stake, board and staff members about 30% and many mum and dad investors in the Bay of Plenty holding Comvita stock - but there is provision for Cerebos to change its conditions to seek a lesser 50%-90% stake, as the takeover play unfolds.
As with a $6 million Dunedin redevelopment of the Gregg's instant coffee brand, chief executive of Cerebos food and coffee division George Crocker sees Comvita's acquisition and future growth also benefiting from redevelopment, to target sales and marketing assistance in Asia, where Cerebos is gaining a foothold.
"We believe the [Comvita] business has potential which can only be fulfilled by an increased investment in research and development and brand building, even at the expense of short- to mid-term profitability," Mr Crocker said yesterday.
Cerebos New Zealand and Cerebos Gregg's are wholly owned subsidiaries of Cerebos Pacific Ltd, a Singapore-based food and health supplements enterprise, listed on the Singapore exchange, and 83% owned by Japanese brewing company Suntory.
After coming off a trading halt, Comvita shares soared almost 25% to $2.60 on expectations of a higher offer in the near future.
Within two hours of Cerebos declaring its $71.6 million hostile bid, Comvita chairman Neil Craig responded and said that after five years of "significant growth", Comvita was "poised to benefit" from years of planning and development.
"I advise you not to sell your Comvita shares, pending further advice from the directors.
"This offer by Cerebos is unsolicited, unwelcome, opportunistic and your directors have reason to believe this offer undervalues Comvita by a considerable margin," Mr Craig said in the statement targeting shareholders.
Cerebos, which has no stake at all at present in Comvita, is offering $2.50 per share; 19% above the Thursday close price and 25% on the previous month average.
However, in a later teleconference call, Mr Craig reiterated the value of the offer was "not acceptable by a mile", but declined to give a preferred bid range, saying an independent appraiser would deliver that in coming weeks.
Mr Craig noted Comvita's owning its own outlets was a "high cost and high risk" way of product distribution, but Comvita had on average in each of the past five years increased revenue by 18%.
"It [Cerebos' $2.50 offer] is an inappropriate number if they want to have a crack," Mr Craig said. He said Cerebos had approached Comvita about four weeks ago about potentially making an offer, but he had not known until 8pm on Wednesday it was making a bid.
The board decision to upgrade Comvita's profit forecast - to between $7.3 million to $8.2 million - was made before Cerebos initially contacted Comvita, Mr Craig said.
The offer, with a closing date yet to be released in a letter scheduled to go to shareholders shortly, is conditional on Cerebos gaining a 90% stake, at which point it would compulsorily acquire the remaining shares.
Comvita would then be de-listed from the stock exchange and would be operated as a stand-alone subsidiary, at its present base in Te Puke, in the Bay of Plenty.
Mr Crocker said Comvita would get increased marketing and research and development in a "significant and long-term" funding boost, but he was unable to say how much would be injected into the company.
Mr Craig said the Cerebos offer was "an opportunistic attempt to capture the benefit of Comvita's innovation and hard work that our loyal and patient shareholders deserve".
Chairman Trevor Kerr, of associate company Cerebos Gregg's, said Cerebos' cash offer should be "highly attractive" to Comvita shareholders in its own right, and more so if the current market turmoil leads to further economic uncertainty.
A month ago, Comvita said its first-half profit would be the best in at least two years, and was pointing the way to an annual profit of as much as $8.2 million, following last year's slump.
The Te Puke-based company expects to post a profit of $2.1 million, based on $41 million of sales, in the six months ended September, The New Zealand Herald reported.
While Cerebos was carrying no debt on its balance sheet, Mr Crocker yesterday said the $71.6 million bid would be funded by a mix of cash and bank debt.
Cerebos Pacific
Singapore based
• Best known for historical flagship Essence of Chicken; other food, beverage, and grocery products.
• NZ brands include Gregg's, Robert Harris, Bruno Rossi, Atomic and Caffe L'Affare coffees, Raro and Refresh powdered beverages, Gregg's herbs and spices, Cerebos salt, Bisto gravies, Cerebos and Whitlocks condiments and sauces, Gregg's desserts.
• 2600 employees, sales of $US925 million, 2010.
Comvita
• Medical manuka honey-based products, including healthcare, personal care and functional foods.
• Founded in 1974 by Claude Stratford and Alan Bougen; first exports to England and California 1989. Listed NZAX November 2003.
• Group revenue past three years; $71.4 million, $84.9 million, $82 million. 330 NZ employees.
• Sells range to 20 countries through more than 400 wholly owned stores (including in 40 Chinese cities through 300 stores); plus third-party outlets worldwide and online.
• Offices New Zealand, Hong Kong, Australia, Japan, Taiwan, Korea and the United Kingdom.
