Bright Food Bids for CSR

SYDNEY—Chinese state-owned food producer Bright Food Group Co. said Tuesday it has approached CSR Ltd. about acquiring its sugar and renewable energy business for up to US$1.4 billion, a sign China is diversifying its investment interests in Australia beyond the energy and mining sectors.

The Australian company shrugged off the approach as "merely an expression of interest" and said it continues to progress with the demerger of its sugar unit announced in June.

CSR's shares ended the day up 4.3% at 2.05 Australian dollars, or about US$1.91, after rising as much as 8.4% earlier in the trading session before CSR played down the prospective offer.

Shanghai-based Bright Food said it sent a letter to CSR Tuesday proposing an all-cash bid that values Australia's biggest sugar refiner at no more than A$1.5 billion but said it didn't have all the information needed to make a final valuation of the division. Bright Food Vice President Ge Junjie said the company is keen to invest in the Australian food industry, in particular in the sugar industry.

Australia isn't a major exporter of sugar to China and Bright Food sees the potential for this acquisition to service its country's growing demand for the commodity.

Sugar is trading near highs due to floods in Brazil and a drought in India, both of which have hampered supply. Even with a 5.3% decline in global sugar consumption last year, sugar prices more than doubled to hit a 28-year high.

Outside of Brazil and India, CSR is one of the largest global suppliers of sugar.

CSR said at this stage, Bright Food's offer isn't a proposal capable of being accepted by the company and added there are a number of conditions and approvals for such a deal to be executed.

Chinese corporations have long been interested in acquiring assets in Australia's commodities sector yet to date, most of the offers have centered on the country's mining sector and have faced political scrutiny. Chinese deal volume in Australia surged to US$10.7 billion last year, more than four times the level seen in 2008, according to Dealogic.

CSR said in June it planned to split its sugar and renewable energy business from the remainder of the company. The median value for the business, from a poll of five brokers in October after CSR announced details of the demerger as well as its first-half results, was A$1.15 billion

Bright Food said it is prepared to discuss a transaction with CSR's joint venture partner Mackay Sugar Ltd. similar to CSR's proposal to acquire the remaining 25% of the sugar refining JVs in Australia and New Zealand from Mackay, which values the interest at A$100 million.

One analyst said Bright Food's offer for the sugar and renewable energy business fell short of his expectations. "My valuation of the sugar assets is currently A$1.6 billion or A$1.7 billion if Mackay Sugar's refining assets are taken into account," said Ben Kakoschke, analyst at Patersons Securities, adding his valuation doesn't take into account the high price of sugar in the global marketplace. "I think any cash bid in the current environment needs to factor in the current high sugar prices as well as a takeover premium."

The company received an expression of interest from Bright Food for its sugar business last year but that didn't eventuate into a formal proposal. CSR drew interest from other parties since the demerger was announced, but the prices weren't attractive and no binding offers emerged, said people familiar with the situation.

source: online.wsj