Despite the disagreements, the arrival of the sale of a controlling interest in Tnuva Food Industries Ltd. at the finish line would be a good idea for a profitable wager. The monetary differences will almost certainly be resolved in a compromise, and Apax Partners will have to accept a lower price for its shares than it had hoped for.
Apax Partners Israel office head and managing partner Zehavit Cohen is presenting a tough line in the negotiations, but she's a smart woman, and it's hard to believe she'd misread the situation. It's true that Apax always has an IPO option, but it won't lead to a short-term exit like the sale of control in the company to Bright Food.
Going back a few months, the parties fixed the value of the company at NIS 8.6 billion, astonishing quite a few people in the capital market, who doubted Apax's ability to get so much for its shares. This doubt was justified. Apax was fishing around for a buyer long before the opportunity to sell Tnuva to the Chinese came its way.
There have been disagreements about the value of Tnuva over the years, but when the company moves from one private owner to another, its value on paper is irrelevant. The real value is what the buyer is willing to pay for it.
From this perspective, the determination of the Chinese and their global strategy, which is guided by the desire to control global resources, played right into the hands of Apax, which signed the deal at an NIS 8.6 billion value.
The key question is what made Bright Food executives suddenly demand a reduction in the price for the deal. To the same degree, it could be asked what prevented Bright Food from asking for a lower price even earlier, as soon as the Israeli government imposed prices controls on white cheese and sweet cream - controls that are both directly affecting Tnuva's financial results and making it clear that regulation in Israel is liable to hit Tnuva even harder. The Chinese may have realized that Apax has no other buyer at this price, and if there's no other buyer, why shouldn't they try to push the price down a little?
It can't be ruled out that Tnuva's performance in the first half of the year and the drop in sales in the food market in July-August this year made it clear to the Chinese that this is a slightly more volatile business than they had anticipated. The decline in Tnuva's first half sales was not confined to dairy products; it also included both beef and eggs, and the company profits were slashed.
Mivtach-Shamir Food Industries Ltd. (TASE:SHAM) reports Tnuva's financial performance to the Tel Aviv Stock Exchange (TASE), but its report is only general, and drawing conclusions from it about Tnuva's business in various sectors is extremely difficult. Bright Food got a much more detailed financial report, which is likely to highlight much more sharply the effect of price controls on Tnuva's profits, an effect unknown to the general public.
It cannot be ruled out that Bright Food discovered several other interesting figures in the course of due diligence - a common occurrence in corporate acquisitions. Bright Food wants Tnuva, but if it can get it at a lower price, why not?
Published by Globes [online], Israel business news - www.globes-online.com - on September 11, 2014
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