Billion-dollar tag for Tegel 'ambitious'

Tegel will probably sell for about six times its ebitda, say New Zealand sources - not 14 times as some have estimated. Photo / APN

Local market players have poured cold water on suggestions from across the Tasman that New Zealand poultry business Tegel could sell for as much as $1 billion.

Tegel was acquired by Australian private equity investor Pacific Equity Partners (PEP) at the end of 2005 in a deal thought to be worth about $390 million.

It then sold 37 per cent of the business to ANZ Bank managed funds and Australian company Lujeta in 2008.

This year PEP appointed Australian-based investments banks Morgan Stanley and Greenhill Caliburn to consider options for the business including a possible trade sale or sharemarket float.

Yesterday the Australian newspaper reported that buyer interest was expected to be strong and because of its high operating margins and low capital expenditure, Tegel could sell for as much as 14 times its earnings before interest, tax, depreciation and amortisation (ebitda).

In its 2009-10 financial year Tegel had ebitda of $79.6 million, putting the possible sale price at $1 billion.

An information memorandum released on Friday also showed plans to lift its ebitda to $144.7 million by 2015, the Australian reported.

But local commentators said the price was ambitious and the company might be valued at just half a billion dollars.

One source said very few parties would be interested or have the ability to pay 14 times earnings.

"It would be ambitious to achieve a multiple like that."

The last time a New Zealand sale valued a business so highly was the Yellow Pages deal in 2007, at the height of the private-equity boom.

Those thought to have had a look at Tegel include Brazil's largest beef producer, JBS, and its rival Marfrig Alimentos and Brasil Foods.

JBS bought United States poultry giant Pilgrim's Pride for US$800 million ($1.06 billion) last year while Marfrig acquired US meat distributor Keystone Foods in a deal worth US$1.3 billion in June.

China's Bright Foods, whose subsidiary invested $82 million in New Zealand milk processor Synlait this year, and Singapore's Olam International, which last month bought a 78 per cent stake in NZX-listed New Zealand Farming Systems Uruguay, are also said to have shown interest.

Tegel is seen as having a strong brand in New Zealand with a 52 per cent market share in a market which does not allow chicken importing.

It also exports to Australia, which only imports chickens from New Zealand because of food safety reasons.

But commentators said Tegel's expansion outside of Australasia was limited because chickens were so much cheaper to farm in Asia and because of transport issues.

"This has been the problem with the asset all the way through - it is a business that has a limited amount of growth potential," said another source.

The source said the deal was more likely to go for about six times ebitda - between $480 million and $500 million.

Indicative offers were expected to be in by early next month, the Australian reported.