Tnuva valuation slashed 40%

Tnuva cottage cheese  picture: Tamar Mitzpi
Tnuva cottage cheese picture: Tamar Mitzpi

A valuation for recycling of the loan that financed Bright Food's acquisition of Tnuva last year cuts the Israeli food company's value from NIS 8.6 billion to NIS 4.5-5 billion.

The problems at Tnuva are affecting the loan that Chinese company Bright Food took to buy control of the Israeli food company. Bright Food representatives are currently conducting negotiations with the concerns that provided the finance, a loan of NIS 2 billion, mainly from Bank Hapoalim (TASE: POLI).

In the talks on recycling the loan, it appears that the terms for the new loan will be stricter than those for the current one. The banks intend to demand from Bright Food higher shareholders' equity and additional collateral, and will probably also raise the interest rate.

In order to set the terms for the loan, the banks commissioned a valuation from consultancy TASC, from which it emerges that Tnuva has lost more than 40% of its value since the deal whereby Bright Food bought control was completed eighteen months ago. The current valuation is NIS 4.5-5 billion, whereas the company was acquired last year at a valuation of NIS 8.6 billion.

Since Tnuva came under Bright Food's control, it has undergone several upsets, some connected to the change of ownership, and some to do with changes in the marketplace. The fall in the company's valuation stems from a decline in its profitability, which is probably set to continue.

Competition has grown in categories in which Tnuva previously held undisputed sway, such as milk and soft cheeses, while regulatory measures, such as putting price controls on cream, have also weighed on its profits. Tnuva is attempting to introduce a streamlining program that is supposed to include manpower cuts, but the program has yet to get underway. In the past year the company also underwent a change at the top, with veteran CEO Arik Schor leaving because of disagreements with the owners, to be replaced by Eyal Malis.

Meanwhile, Bright Food's Israel representative Yossi Shahar will reportedly relinquish that position, although he will apparently remain as deputy chairman of Tnuva and focus on Tnuva itself rather than on Bright Food's affairs, particularly the finance problem.

While Tnuva is in this difficult situation, the loan that Bright Food took to finance the acquisition from Apax has fallen due. When the financing package for the deal was put together, it was decided that the loan would be for the very short period of one year, and that after that it would be replaced with a longer loan of 6-7 years, in accordance with the business situation. The banks point out that Bright Food asked for such a loan structure, in order that it would have a year to become more familiar with the market, and construct a new loan accordingly.

In the end, the recycling of the loan at the present time does not suit Bright Food. The reports of the new valuation angered managers at the company, who even threatened to sue the banks because of the leaked information.

Financing the Tnuva acquisition was considered a prestigious deal for the banks. Bank Hapoalim won the tender, and later introduced Israel Discount Bank (TASE: DSCT) and First International Bank of Israel (TASE: FTIN), and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) as partners. Bank Hapoalim saw the deal as a strategic opportunity for expanding cooperation in China, and so did its utmost to win the deal.

Published by Globes [online], Israel business news - - on September 1, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Tnuva cottage cheese  picture: Tamar Mitzpi
Tnuva cottage cheese picture: Tamar Mitzpi
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