Analysts say firms such as Cargill and DSM could still trump SHV's offer

‘We believe it is a fair price,’ Nutreco backs takeover offer from investment firm SHV

By Jane Byrne

- Last updated on GMT

The Nutreco boards have recommended shareholders to accept the SHV offer
The Nutreco boards have recommended shareholders to accept the SHV offer

Related tags Fish feed Nutreco

Animal and fish feed group, Nutreco, said it fully endorses the bid from privately-held Dutch investment firm, SHV, to acquire it for €40 ($51) per share, or €2.69 billion ($3.43bn), and it dismissed speculation about third party bids for the business.

“SHV approached us in mid-September on this, and we have been actively discussing the acquisition since then.

We fully endorse the offer and believe the multiples involved in the deal represent a fair price and are comparable to transactions that have taken place in our sector in recent years,”​ Mark Woldberg, communications spokesperson for Nutreco, told feednavigator.

He said SHV is a responsible investment company and sees long term growth prospects for Nutreco and the feed sector. “SHV has agreed to retain the business as a whole, as well as our culture and values, which is positive for the employees and the group,”​ added Woldberg.

Analysts don’t rule out offers from third parties  

The offer, which represents a premium of 42% to the stock's closing price on Friday, is conditional on SHV acquiring all Nutreco shares, but analysts told us they could still envisage a third party, especially one from the feed sector, putting in a higher bid – maybe €48 per share - for the Dutch feed company.

“The takeover bid from SHV comes at a good time as share prices at Nutreco were under pressure due to competition in the Norwegian salmon feed market and the overcapacity generated by the investment in feed production by Marine Harvest.

SHV would appear to be investing for the long haul and has stressed that, under this deal, it would be business as usual for Nutreco.

However, we can’t rule out other companies trumping SHV’s offer, especially feed players like Cargill who may see huge value in combining the animal nutrition and fish feed operations of the Dutch group with its own,”​ said Maarten Bakker, equity analyst at ABN AMRO. 

Gerard Rijk, analyst at SNS Securities, takes a similar stance.

“Obviously, SHV cannot capitalize on synergies in this takeover but it brings a long-term vision and the necessary CAPEX funds to accelerate Nutreco’s expansion in markets such as Africa, Asia and Latin America.

Also, if SHV were successful in its bid then Nutreco would be delisted from Euronext Amsterdam, freeing it up in terms of responsibilities to short-terms investors.

But several other scenarios are still possible. A lot of other feed industry firms might show interest in acquiring Nutreco now.”​ 

DSM and Cargill to throw their hats in the ring?

He forecasts DSM as being interested in parts of Nutreco’s premix division as a distribution vehicle for its vitamin business, saying that company may partner with Cargill in making a bid for the Dutch feed group.

“DSM already paid 9 x EBITA for Brazilian premix group Tortuga.

Cargill, who has been too busy integrating Provimi​ to develop the aqua feed side of his operations, would be attracted by the robust structure of Nutreco’s fish feed division, its broad species portfolio and extensive client list as well as the synergies to be leveraged on the animal nutrition side.

I could see Cargill coming in with an offer of 12.5x EBIT, exactly the multiple they paid out on Provimi,”​ said Rijk.

But Woldberg was quick to dismiss such conjecture, saying the SHV offer was the only one on the table. “Nutreco has not received any other approaches, and the boards have recommended shareholders to accept this offer,”​ he added.

Fish feed revenues dip but animal nutrition buoyant

Nutreco also released a third quarter trading update today, saying revenue of €1,428.9m for the period represented a decline of 4.1% on that for Q3 2013, citing the impact of currency effects. 

Animal nutrition income jumped by 2.3% to €454.9m but there was a drop of 8.2% in fish feed sales at €639.4m.

The Iberian compound feed and meat division's revenue for the period also decreased by 4.4% to €334.6m. 

Knut Nesse, CEO of Nutreco, said the performance in the third quarter is in line with expectations. He said the financial position reflects organic volume growth for its animal nutrition division which all markets contributed towards. Product categories such as young animal feed did well in the quarter, he added.

Nesse also noted higher non-salmonid fish feed volumes: “Our fish feed segment had negative volume growth mostly due to lower sales in Norway as a result of lower volumes to Marine Harvest, as anticipated. Our non-salmonid feed volumes grew strongly with a solid contribution from Ecuador."  

He said the volume share in revenues of fish feed for non-salmonid species is now 41% compared with 37% in the same quarter last year. 

The Norwegian salmon feed business represents approximately 10% of Nutreco's total operating profit, and Nesse said it will always remain an important market from an innovation perspective.  He said Nutreco aims to stay top of the pile in Norway.

However, he notes that over 70% of fish feed production takes place outside of Norway and "we expect this volume to grow further​."

And Nesse reckons the potential of feed for shrimp, tilapia and other non-salmonid species will continue as fish farming practices improve. “This will encourage further demand for higher quality fish feed which we offer due to our leveraging of the innovations already developed for salmon feed,​” added the CEO. 

The CEO said based on the business developments in the third quarter, he is confident the company will achieve a full year EBITA before exceptional items of “at least equal to last year."

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