SYDNEY/SINGAPORE: Singapore’s Wilmar International is buying Sydney-based CSR’s sugar business for US$1.5 billion (RM4.84 billion) in a surprise deal that trumps China’s Bright Food Group and gives it control of more than half of Australia’s raw sugar output.

CSR, the world’s fifth-largest sugar refiner, said yesterday Wilmar had agreed to buy its Sucrogen sugar arm, ending a year-long effort to either spin off or sell the asset and pushing its share price up as much as 5% in a weak broader market.

After a 150-year history in sugar, CSR is selling Sucrogen, a household name in Australia, to focus on its core building materials operations. Wilmar, the world’s largest listed palm oil producer, is using the deal as a springboard for further expansion into sugar.

“This latest acquisition proves that Wilmar is well on its way to becoming a dominant global sugar player and will significantly raise the possibility of the injection of (Malaysian tycoon) Robert Kuok’s sugar business into Wilmar,” said Alvin Tai, an analyst at Malaysian brokerage OSK Group.

Kuok is the uncle of Wilmar chief executive Kuok Khoon Hong.

The deal was also a coup for CSR which has been trying to demerge Sucrogen from its core building materials business for a year. The CSR board over the weekend rejected a lower formal offer from Bright Food Group, which has been chasing CSR since the start of the year.

One source close to Bright Food said the price agreed was A$1.68 billion (RM4.53 billion) and news of Wilmar’s rival bid had taken it by surprise.

CSR chief executive Jeremy Sutcliffe, who was bought in to run the company in April due to his experience brokering major deals in the metals recycling sector, said Wilmar won the race with an offer at the “very last gasp”.

“At the end of the day they (Bright Food) didn’t quite get there in terms of price or certainty,” he told reporters.

UBS and Lazard advised CSR on the deal. Australia & New Zealand Banking Group advised Wilmar. It was one of two major takeovers for corporate Australia yesterday after Centennial Coal Co Ltd agreed to a US$2 billion offer from Thailand’s Banpu Pcl.

The Australian government’s watered-down plans for a big mining tax late last week were expected to clear the way for a string of deals in the resources sector.

Wilmar’s purchase price was A$1.347 billion for equity and A$403 million for debt, 6% higher than a conditional A$1.65 billion offer Bright Food made to CSR’s board late last week.

Wilmar’s shares rose as much as 2.3% to S$5.88 (RM13.55), outperforming a slight fall in Singapore’s headline index.

“This is positive news as it’ll help jump-start their strategy to expand in the sugar business and (represents) the next growth driver for Wilmar,” said DBS Vickers analyst Ben Santoso.

He expected the new business to see synergies from capitalising on Wilmar’s extensive distribution to China and Asia.

Britain’s Tate & Lyle last week agreed to sell its European sugar operations to American Sugar Refining. That deal had a valuation of 12 to 14 times 2010 earnings before interest, tax, depreciation and amortisation, according to analysts, compared to about 9.8 times for the CSR sale.

CIMB analyst Ivy Ng said the deal was positive in the medium term as it gave Wilmar knowledge to expand to other parts of Asia.

“But in the short term, based on what they have so far it does not appear the acquisition will significantly increase their earnings,” said Ng.

“In the longer term, it would be good if they can replicate the business in other parts of Asia like China, India and Indonesia, but you won’t see that tomorrow.” — Reuters

This article appeared in The Edge Financial Daily, July 6, 2010.