Uncle Tobys sale leaves Hart sitting on $3.5b

Graeme Hart

Graeme Hart's latest billion-dollar deal will leave Burns Philp - the Australasian food company he took over in 1999 - sitting on more than $3.5 billion in cash, but the company is not saying how it plans to spend it.

Burns Philp, in which Hart owns a 54 per cent stake, yesterday announced the long-awaited sale of its snack food business Uncle Tobys to Nestle for A$890 million ($1.1 billion).

The price was in line with Burns' own valuations, chief executive Tom Degnan said.

"Our view of the entire snacks division was that it was worth between A$1.1 billion and A$1.2 billion," he said. "So we've realised about A$900 million and we still have the review for Bluebird foods ongoing."

The price represented an ebitda multiple of 11.5 times, he said.

New Zealand's Bluebird Foods had been part of Uncle Tobys but is not included in the deal. It will go through a separate sale process.

Uncle Tobys is a major player in the Australia cereal and snack bar market. It was part of Goodman Fielder Group but Hart and Burns Philp held on to it when 80 per cent of that company was floated last year.

As a fast-moving consumer goods business, Uncle Tobys is valued more highly than the larger Goodman ingredients business.

The Goodman float and some earlier asset sales have left Burns Philp holding about A$3.3 billion in cash, not including the A$800 million of debt that Burns Philp still carries. The pile may be about to grow by a further A$200 million to A$300 million if the Bluebird sale goes to plan.

If Hart was comfortable making a heavily leveraged buy - as he has been in the past - Burns Philp could make a purchase worth up to A$6 billion, a Credit Suisse report estimated earlier this year.

"That's quite a lot," Degnan said. "Which is why you have to be very careful as you go through your analysis on investment."

He would not say if Burns Philp was close to making its next buy.

"There is no benefit in telegraphing your next move. When we've got something to announce you'll hear about it."

Degnan acknowledged that some investors might be uncomfortable with the amount of cash the company held. "I know there are people who are getting concerned about the time we're spending on this, but I think our shareholders would be more comfortable knowing that we are driven by reaching the right answers, not by some arbitrary timetable."

Burns Philp has already flagged that it is prepared to look outside Australasia and outside the food industry.

"Our criteria is around steady, defensible cashflows, good underlying assets and the ability to add value."

Despite the fact that Burns Philp has almost entirely exited the food industry, chief executive Degnan rejected suggestions that he now ran an investment company comparable to a private equity player.

"We are operators, we are not pure investors," he said. "We've gone into businesses we've improved them and at what we think might be the appropriate time we have exited them."

Shares in Burns Philp closed up A2c at A95c on the ASX.


HART'S HOLDINGS

* Carter Holt Harvey, 100 per cent: Worth $3.3 billion - minus an undisclosed chunk of debt

* Burns Philp, 54 per cent. Includes Bluebird Foods, a 20 per cent stake of Goodman Fielder, more than $3.5 billion cash and about A$800 million in debt.