The offer is A$1.5B and this Bloomberg story has a broad...

The offer is A$1.5B and this Bloomberg story has a broad valuation of A$1.6. Plus they would need to pay a prenium for control.


Jan. 12 (Bloomberg) -- Bright Food Group Co., the biggest food company in Shanghai, offered as much as A$1.5 billion ($1.4 billion) cash for CSR Ltd.s sugar unit to gain raw materials after global prices more than doubled in the past year.

CSR shares rose to the highest in more than two years in Sydney trading after Bright disclosed its bid in a statement today. The Shanghai-based companys offer is merely an expression of interest and isnt capable of acceptance, CSR said in a stock exchange filing.

The state-owned company, with businesses spanning yogurt and ice cream to meat, would gain mills that account for about 4 percent of the global raw sugar trade. CSR, Australias second- largest maker of building materials, has been seeking to sell the unit to take advantage of a surge in sugar prices prompted by a global production shortfall.

It is a chance for the Chinese conglomerate to buy a large global player in a soft commodity that has got some very favorable longer-term dynamics, Paterson Securities Ltd. analyst Ben Kakoschke said by phone from Melbourne. CSR is large on a global scale and is relatively cost-efficient.

CSR rose 4.3 percent to A$2.05 at the 4:10 p.m. close of the exchange in Sydney trading. The stock earlier rose as much as 8.4 percent to A$2.13, the highest since November 2008.

The Shanghai municipal government, Brights biggest shareholder, wants to build the company to encompass dairy, confectionary and beverage businesses, Liu Ran, analyst at Central China Securities Holdings Co., said today by phone from Shanghai.

Volatile Prices

CSRs sugar unit may help complete the whole groups production chain, Liu said. Still, she said sugar prices are volatile and it may not be a good timing to buy sugar producing assets now.

Demand for sugar in China, the worlds second-largest consumer behind India, may exceed production by 3.3 million tons in 2009-2010 after drought and cold weather cut yields, according to the Guangxi Bulk Sugar Exchange Center.

Bright Food accounts for 10 percent of Chinas sugar market, according to the companys Web site. Bright, which controls four listed companies including Bright Dairy & Food Co., Shanghai Jinfeng Wine Co., Shanghai Maling Aquarius Co. and Shanghai Haibo Co., has more than 3,300 retail outlets, according to its Web site.

The Chinese company is keen to invest in the Australian food industry, particularly sugar, Vice President Ge Junjie said in the statement. The proposed acquisition was also in line with plans to build resource-related businesses including dairy, wine and nutrition products, Ge said.

Enterprise Value

As part of its sugar restructuring, CSR plans to buy a 25 percent stake in a refining venture from partner Mackay Sugar Ltd. Excluding that holding, CSRs sugar unit has an enterprise value of A$1.6 billion, assuming a long-term sugar price of 17 cents a pound, Patersons Kakoschke said.

CSR is considering options for the separation of the sugar unit, saying it will look at any proposal it gets. CSR last year said it planned to spin off the unit from its aluminum and building material operations by March 31.

The division had earnings before interest and tax of A$83.7 million in the year ended March 31, or 26 percent of total company EBIT of A$320.1 million. Revenue from the business was A$1.4 billion, 40 percent of the total of A$3.5 billion.

Raw-sugar futures for March delivery fell 0.78 cent, or 2.8 percent, to 26.75 cents a pound on ICE Futures U.S. in New York, yesterday. On Jan. 7, the price reached 28.95 cents, the highest level since Jan. 27, 1981.

Any acquisition needs approval from Australias Foreign Investment Review Board, Bright Food said.

It might not be viewed in the same light as key strategic assets like iron ore, but it is part of an Australian commodity asset, Kakoschke said. So there is a chance for that to be a hurdle.

To contact the reporter on this story: Wendy Pugh in Melbourne [email protected].

Last Updated: January 12, 2010 00:18 EST