Patties Foods Limited (ASX: PFL) which makes products such as Four N Twenty, Patties and Nanna's pies has recommended that its shareholders accept a takeover bid from Pacific Equity Partners, a private equity company,
for $ 232 million. The company was involved in a problem with hepatitis A last year resulting in a substantial fall in profit for 2014/15 because of a decline in frozen fruit sales caused by the recall of the Creative Gourmet and Nanna's frozen berry products. Profit in the first half of the current financial year has dropped by around 12%. Pacific Equity Partners managing director David Brown said that the pit shows the quality of the heritage of Patties as well as the position of its manufacturing platform for future growth. Members of the Rijs family, which founded Patties and have a 38.6% stake support the bid subject to the opinion of an independent expert that the bid is in the best interest of all company shareholders.
The offer entails $ 1.65 per share leading to $84.15 million in net value for the family.
Bakery Business EBIT Growth (Source: Company Reports)
Experts have regarded the company as a takeover candidate ever since the food safety problem and the recall of many of its frozen products. Earlier this year, the shares touched the low point of $ 1.05 before recovering and the company has finalised a scheme implementation deed with Australasian Foods Bidco Pty Ltd, which will see the acquirer own 100% of share capital of PFL.
The offer of $ 1.65 per share includes a special dividend of $ 0.25 per share, which could provide tax benefits to shareholders of up to 10.7 cents per share by way of franking credits, depending on their tax rate. The directors have unanimously recommended the offer to shareholders unless a better offer is forthcoming and this is also subject to the recommendations of an independent expert. Chairman Mark Smith said that he remains confident regarding the company's growth plans, and that the business is undergoing strong momentum, the offer provides value to shareholders.
There are early indications that the food manufacturing activity would continue to be located in Bairnsdale and Pacific Equity Partners says that they acknowledge the important role of the company in the local community and would continue to support it. The offer is in cash but there is an option for shareholders to retain equity in the business provided there is adequate demand.
Smith said that Pacific Equity Partners have acknowledged the importance of Bairnsdale operations and the positive view had an important part in considering the bid. The acquirer has plenty of experience in consumer foods in Australia and New Zealand with earlier involvement in companies such as Peters Ice Cream, Manuka Health and V energy drinks. The deal has been intensively negotiated for a while. Smith also said that the premium of 31% was too attractive to reject and was reinforced by the prospect of cash. No regulatory issues have been anticipated.
PFL stock surged 32.94% in the last one month (as at June 03, 2016) at the back of news around the takeover.
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