Goodman Fielder Limited (ASX: GFF) has recently been the subject of takeover speculation after Wilmar International Ltd, the world’s largest palm oil player, took a 10% stake.

Goodman Fielder’s stock shot up 33% on February 28 after the announcement and it doesn’t seem likely to fall any time soon.

Wilmar has paid $115 million for the 10.1% stake in the company and are assessing if they should increase their shareholding. The investment rationale posted by the buyer stated that “Goodman owns multiple leading consumer brands in baking, dairy, home ingredients and edible oils categories across Australia, New Zealand and Asia Pacific” and that these brands will complement its consumer business.

Wilmar may be able to extract benefits from Goodman’s manufacturing and supply network and its brands, while utilising their own size and scale to lower input costs. However, this might not be as easy as it seems.

Goodman Fielder’s performance has been disappointing over the past few years. Neither Free Cash Flows nor Revenue have increased consistently, even with the restructuring that the company has gone through. Furthermore, the first half net profit after tax of this year decreased 77% to $22m due to the increase in commodity prices, as well as aggressive pricing from their competitors.

‘We look forward to working with Goodman Fielder and its management team to improve Goodman Fielder’s performance over time,’ said Wilmar chairman and chief executive Kuok Khoon Hong.

There is a need for a major improvement if Goodman is to stand on its own. If Wilmar can bring some of its expertise to bear on Goodman Fielder, it will benefit both groups of shareholders.

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This article was written by Motley Fool contributor Jonathan Lee. Jonathan does not own any shares mentioned in the article. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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