More money was natural sweetener
July 6, 2010
KUOK Khoon Hong is clearly far more loved by the Singaporean sharemarket than CSR is locally. How else to explain why CSR's surprise $1.75 billion sale of its namesake sugar business to Kuok's Wilmar International yesterday added almost $800 million to the market value of his company, yet added barely $80 million to the seller, which is pocketing a lot more cash than it had expected?
Wilmar wrong-footed China's Bright Food, which had been bidding since January, by offering more money. Kuok's team was apparently so confident that it had Minter Ellison partner Leigh Brown, who specialises in advising clients on Asian deals, register a corporate structure here last Thursday.
Kuok is these days ranked as Singapore's third-richest man, with about $US3.5 billion ($A4.2 billion), according to Forbes, although he still has some catching up to do on uncle Robert Kuok's $US13.5 billion.
Most of his wealth comes from Wilmar, which is worth $S38 billion ($A34 billion) and now claims the title of Asia's largest agribusiness group. Wilmar was put together by Kuok, with assets from Uncle Robert, business partner and grain trader Martua Sitorus, and the Chinese grain business of Illinois-based Archer Daniels Midland. It has been a profitable exercise for all (and for Kuok's broker mate Peter Lim, who is now a billionaire after putting $10 million into the compliance listing in 2006), and Kuok is well-liked in his home town.
There are critics of Wilmar on the environmental front because its palm oil operations in Indonesia are viewed as contributing to the endangerment of orangutan habitats. The company has strenuously defended its practices.
Wilmar already had a minor presence in sugar in Australia after buying the Brisbane Sugar Terminal in a joint venture last year, but it will now own not just a vertically integrated producing business but a big foothold in the pantries of Australian households - and a great launching pad for meeting increasing demand in China and other developing Asian nations.
The biggest hurdle the deal faces is clearing the Foreign Investment Review Board, which is really only a cypher for government policy. When Shanghai's Bright Food first made its initial $1.5 billion offer for the CSR business in mid-January, the deal was caught up in a whiff of xenophobia over state-owned entities buying more of the Australian ''farm''.
Wilmar's purchase does not carry any of that baggage, although Treasurer Wayne Swan and Prime Minister Julia Gillard will be keenly conscious of public opinion when they consider whether to approve the sale, given the deal's proximity to the federal election and the pivotal role Queensland electorates will play in the outcome.
CSR chairman Ian Blackburne and interim chief executive Jeremy Sutcliffe also get to pop along to the annual meeting in a couple of days armed with much better news than having to vote on the contentious plan to float the sugar unit as a separate company.
The trick now will be to harvest enough of the sale money to ensure that the courts and public are satisfied CSR is properly providing for potential victims of its now defunct asbestos operations.
They can now say that some time later this year, once the asbestos issue has been resolved, the company will be thinking about what the most tax-effective reward will be for investors - it may be more complicated than a capital return because it will depend on how the Tax Office views proceeds from the sale.
Already CSR is budgeting for about $150 million in costs. Much of that will be capital gains tax, followed by legal fees, although a substantial amount will be in the form of success fees to Lazard and UBS, which ran the sale (Goldman Sachs dropped out of the game earlier this year).
The sale had a few other interesting outcomes. Someone in the Bright Food camp clearly believed it was the right strategy to leak details of its offer to the media over the weekend, possibly hoping that publicising its decision to bid a lower price than the $1.75 billion mooted in April would clear the field of rivals.
In the end, they must have felt a little silly when CSR chief Sutcliffe made the courtesy phone call yesterday morning telling them they had been beaten by Wilmar (he had already rung Kuok's office). Asked about the Bright Food leak, Sutcliffe referred to the preparedness of some to breach confidentialities.
He also made repeated references to the ''uncertainty'' in Bright Food's offer, without ever spelling out whether that reflected the bid's conditions or CSR's reading of conditions in the FIRB and Canberra on what hoops a state-owned entity might have to jump through.
The second beneficial outcome is that we have, hopefully, been saved from the listing of a company called ''Sucrogen'' - which sounds more like an artificial sweetener than the real thing.
Sucrogen boss Ian Glasson, who was hoping to head up his own listed company if it had instead floated, probably disagrees.
Finally, ANZ chief Mike Smith will no doubt be congratulating Glenn Porritt and his mergers and acquisitions team, which was the successful advisory team for Wilmar. As long as there are no hitches, a relationship with the Kuoks will not hurt his Asian expansion ambitions for the bank.
Source: The Age
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