Comvita says don’t sell, Cerebos takeover ‘unwelcome’

Honey products and healthcare company Comvita has lashed out at a bid by Cerebos to buy the company, describing the takeover offer as “unwelcome, opportunistic” and considerably under value.

Cerebos, a global coffee and food conglomerate, is offering $2.50-a-share, to buy the Te Puke-based company and says its price represents a 19% premium to the closing price of Comvita shares yesterday of $2.10.

The offer values Comvita at $71.6 million.

Cerebos, which is being advised by Cameron Partners and Bell Gully, said the proposed offer is conditional on 90% acceptance and if successful it plans to de-list Comvita and operate it as a standalone subsidiary.

Comvita’s independent directors immediately issued a “don’t sell” notice.

“I advise you not to sell your Comvita shares pending further advice from the directors,” Comvita chairman Neil Craig said.

“This offer by Cerebos is unsolicited, unwelcome, opportunistic and your directors have reason to believe this offer undervalues Comvita by a considerable margin.”

‘Completely inappropriate’
At a conference call today Mr Craig described the Cerebos bid as “nonsense” and “not acceptable by a mile.”

Comvita issued a profit upgrade on September 14 signaling normalised net profit for the March 2012 year to be in a range between $7.2 million to $8.2 million, compared to last year’s $3.6 million.

Mr Craig said based on those numbers the Cerebos bid worked out at a price to earnings (PE) multiple of less than 10, when the market average for this year is about 14.5 to 15.

Mr Craig said he calculated the offer price at an enterprise value to ebitda multiple of about 5.7.

“It’s a nonsense really. It’s a completely inappropriate number if they want to have a crack at it.”

He said Comvita had grown from producing about $35 million in sales five years ago to $90 million in sales, while making a large number of acquisitions to improve product range and distribution.

“We’ve really got this humming now and the revenue is popping through to the bottom line, the gross margin is improving year on year, quite rapidly over the last five years – we’re up to 58% and still climbing.”

Discussions held last month
Asked by one investor whether Cerebos had made any approaches prior to making its offer, Mr Craig said the company had notified Comvita about a month ago that it was interested in bidding for all or part of the company.

“Did we expect a bid? I suppose we anticipated a bid but we weren’t certain they were going to do it until 8pm last night.”

Mr Craig told NBR the approach was made shortly before Comvita issued its profit upgrade on September 14.

“We made the decision to announce the profit upgrade at a board meeting as soon as we were in a position to know exactly where we were.”

The board meeting was held about three weeks prior to the profit upgrade, he said.

“In between times they approached us very close to that date probably a few days before that. So we were in a position of doing that anyway.”

Interest expected
Mr Craig said Comvita had not had any other approaches from other parties, however he expected the Cerebos bid to create a high level of interest.

“Because [the Cerebos bid] is so low and because its an iconic little company and its an overseas party, it will create a lot more interest than otherwise.

“We would expect over the next few days we would get approaches. That’s what normally happens.”

Comvita shares climbed 50c or 23.8% to $2.60 on the NZX today in response to the takeover offer.

Mr Craig said the board was in the process of taking formal third party advice on the Cerebos bid.

“It’s not acceptable by a mile. There will be an appraisal report written by an independent expert – that will have some bearing impact on actually how we formally recommend to the shareholders.”

Shareholder John Wilkinson recalled investing in a rights issue back in October 2007 at about $2.80-a-share and noted that the share price in April that year was around the $4 mark.

“At the present time I think Cerebos are just eying it in a typical fashion and saying hey guys the market’s down low, lets make a steal. So I definitely wont be selling my shares.”

Comvita's single biggest shareholder is co-founder Alan Bougen with about 10%.

Cerebos sees potential
Trevor Kerr, the chairman of Cerebos Gregg’s, said the cash offer from Cerebos should be “highly attractive to Comvita shareholders in its own right and even more so if the current market turmoil leads to further economic uncertainty.”

“Cerebos would be looking to explore areas of collaboration. In particular, we can provide strategic assistance in sales and marketing in Asia where the Comvita brands are not yet well established. We believe the business has potential which can only be fulfilled by an increased investment in research and development and brand building – even at the expense of short to mid-term profitability.”



The Cerebos group recently invested in a $13 million expansion at Dominion Salt in Mt Maunganui in which it is a 50% joint venture partner and is currently making a $6 million investment in New Zealand’s only instant coffee producing plant in Dunedin.

Cerebos New Zealand and Cerebos Gregg’s are wholly owned subsidiaries of Cerebos Pacific Limited - a leading food and health supplements enterprise with its corporate headquarters in Singapore and listed on the Singapore Exchange Securities.

Cerebos brands include Gregg’s, Robert Harris, Bruno Rossi, Atomic and Caffe L’Affare coffees, Raro and Refresh powdered beverages, Gregg’s herbs and spices, Cerebos salt, Bisto gravies, Cerebos and Whitlocks condiments and sauces, and Gregg’s desserts.