Goodman Fielder share float a boon for investors

Graeme Hart's Burns Philp will give the New Zealand sharemarket a huge shot in the arm when it spins off its Goodman Fielder food business this year.

The Business Herald understands Burns Philp aims to offer investors an 80 per cent stake in the business, worth A$1.3 billion to A$1.9 billion ($1.4 billion to $2.07 billion). The exact value of the offering is dependent on demand for shares. The Kiwi billionaire controls Burns Philp through his private company Rank, which owns a 54 per cent stake.

New Zealand investors, including retail investors, are expected to buy $200 million to $300 million of the shares with the rest going to investors in Australia, the United States, the United Kingdom and Asia.

The company will have a market value of about A$1.6 billion to A$2.3 billion. This will place it in the benchmark ASX-200 and the NZX-50 indicies and ensure reasonably strong demand from large institutions for the shares.

It will have a dual primary listing in New Zealand and Australia.

Timing of the float, which will give priority to existing Burns Philp shareholders and holders of the company's converting preference shares, is unclear although Burns Philp has said it was aiming for the latter part of this year.

The company is to be created from the merger of the dairy and cured meat assets Rank bought from dairy giant Fonterra last month and Burns Philp's baking, spreads and oils business.
In the year to last June, the business would have had sales on a pro forma basis of A$2.3 billion and trading profits of A$360 million to A$380 million. But bankers selling the shares are expected to make much of the growth in earnings.

The company is expected to have around A$1 billion of debt, giving it an enterprise value of around A$2.9 billion on a conservative estimate of its market value.

Since similar businesses trade on an earnings multiple of around seven to eight times prospective trading profits, the company should turn in around as much as A$414 million next year.

Much of the earnings growth is expected to come from the brands Hart acquired from Fonterra, including the dairy brands Meadow Fresh, Naturalea, Tararua and Chesdale and the Kiwi, Huttons and Top Hat cured meats brands.

These are expected to benefit from Hart's cost-cutting zeal.

Many of the existing Goodman Fielder baking, oils and spreads brands - which include Molenberg, Quality Bakers, Vogels, Ernest Adams, Meadow Lea and Newman's Own - are mature slow-growth operations.

Many were also part of the Goodman Fielder business Burns Philp took over and delisted from the stock exchange in 2003.

It is the prospects for these businesses that have muted enthusiasm for the company among Australian sharemarket observers.

The deal is a plum for investment banks, worth as much A$30 million in fees. Credit Suisse First Boston, which has a long relationship with Hart and Burns Philp, is expected to take the lead manager role. Its local affiliate, First New Zealand Capital, is sure to benefit. Other banks thought to be in the running to share the fees include Goldman Sachs JBWere, UBS and Macquarie Bank.

The structure

* Graeme Hart's Australasian food business Burns Philp will retain a 20 per cent stake in the Goodman Fielder business it plans to spin off on to the New Zealand and Australian Stock exchanges.

* The business will be sold to investors worldwide and is expected to have a market value of A$1.6 billion to A$2.3 billion.

* The company is to be created from the merger of the dairy and cured meat assets Hart's private company Rank bought from dairy giant Fonterra and Burns Philp's baking, spreads and oils business.