Goodman Fielder Ltd rejects takeover offer

Bread maker says deal is opportunistic and undervalues the company

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Baker Goodman Fielder Ltd (ASX: GFF) has rejected a $1.27 billion takeover offer by major shareholder Wilmar international, saying the deal undervalues the company.

Wilmar Intl, who owns 10.1% of Goodman Fielder, has paired up with Hong Kong-based First Pacific Company, an investment manager, to offer 65 cents for the remaining shares it doesn’t already hold.

Wilmar’s bid is reported to be conditional on due diligence, unanimous recommendation by the board of Goodman Fielder, and approval by the boards of Wilmar and First Pacific. It is also likely to require Foreign Investment Review Board (FIRB) approval.

Goodman Fielder says the bid undervalues the company and is opportunistic, given its strategy of driving cost savings, and reviewing its various businesses to deliver greater cost efficiencies. The company counts Meadow Lea, Praise, White Wings, Pampas, Mighty Soft, Helga’s, Wonder White, Meadow Fresh and Irvines amongst its most well-known brands.

Goodman Fielder has been struggling to maintain its profit margins, as the supermarket retailers, Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES), have ramped up sales of their own private label goods, including bakery, dairy and general products. It’s a scenario that even bottler Coca-Cola Amatil Ltd (ASX: CCL) is struggling with.

Goodman Fielder has been forced to lower its sale prices on its brand name products, to compete. As a result, sales have fallen consecutively over the past five years, leading to the company reporting a number of losses, mainly through writedowns and restructuring charges. And this financial year is on track to continue that theme, with Goodman Fielder saying it expected normalised earnings in 2014 to fall 10 to 15% lower than last year.

Add in more than $500 million in net debt, and Goodman Fielder has struggled to remain a viable business.

Foolish takeaway

From a high of $2.60 in 2007, shares in Goodman Fielder have sunk as low as 37 cents in 2011/12. Long suffering shareholders may be hoping Wilmar will make a higher offer, which is possible, given the deal’s condition of unanimous approval by the Goodman Fielder board.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Coca-Cola Amatil. You can follow Mike on Twitter @TMFKinga

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