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Decision time for Comvita bidder Cerebos

Cerebos is threatening to start up in direct competition to Bay of Plenty-based Comvita if its bid to buy the manuka honey products company fails.

Duncan Bridgeman
Tue, 29 Nov 2011

Cerebos is threatening to start up in direct competition to Bay of Plenty-based Comvita if its bid to buy the manuka honey products company fails.

The multinational coffee and food giant is weighing its options after an independent advisor valued Comvita’s shares at between $3.40 and $4 each, compared to Cerebos’s $2.50-a-share takeover offer.

Comvita shares are currently trading at $2.90, down 5c in today’s trading.

Cerebos Greggs chief executive George Croker says the group may raise its bid price but “certainly not” to within the range of the independent valuation, which he did not find credible.

Cerebos has until December 7 to extend its offer, which currently closes on December 22. The offer has become increasingly hostile since it was announced to the market on October 14. 

“Cerebos appreciates that it may not be successful at $2.50, but should we raise our offer, it will not be to a level within the independent advisor’s range,” Mr Crocker said at a media briefing today.

Other options included simply walking away and looking at either acquiring another player or at launching manuka honey products under Cerebos’s own health supplement brand, he said.

“You could do a lot of brand building for the $71 million offered for Comvita,” he said.

Comvita’s independent directors have urged shareholders to reject the Cerebos offer after independent advisor Grant Samuel found no compelling reason for shareholders to accept.

Chairman Neil Craig went further saying Grant Samuel should have valued Comvita higher still.

But Mr Crocker questioned the valuation, saying Grant Samuel relied on forecast earnings for 2012 when Comvita had a history of volatile earnings and over promising on its forecasts.

“The independent advisor uses a capitalisation of earnings approach to arrive at its valuation, despite saying in its report that this approach is appropriate only for businesses with a consistent earnings history.”

He says for Comvita to achieve its forecast normalised net profit of $7.3 million to $8.2 million for 2012 it will need to deliver twice its first half result of $2.6 million.

“In our view it is not realistic to expect that anyone is going to offer $3.40-a-share for Comvita based only on the current year’s earnings forecast which it may not achieve and which may not be sustainable in the future.”

He notes the Comvita share price is currently trading around the same level as the $2.91 target price calculated by Deutsche Bank analyst Selwyn Blinkhorne on November 15.

For his part, Mr Craig is confident the company will hit its targets.

“The issue is we believe there’s a lot less moving parts, we’ve got this business well under control and we can be much more comfortable about our numbers into the future,” he said last week.

Mr Crocker highlighted several risks to the Comvita business, including agricultural, climatic risks, and market risks from the financial crisis in Europe.

However, Grant Samuel is sticking by its valuation.

“I think [Cerebos] are not recognising that [Comvita] has actually moved to a new level and is actually starting to generate significant revenues and good margins," Grant Samuel director Michael Lorimer told NBR last week.

“I don’t think the market appreciated it either.”

Duncan Bridgeman
Tue, 29 Nov 2011
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Decision time for Comvita bidder Cerebos