UNIT University Network for Investing and Trading UniMelb

M&A and Deals 09/05/2018

By: Mazen Elsabrouty

Saputo Drinks Up Murray Goulburn Without Koroit

Canadian dairy giant Saputo has finally had its $1.3 billion takeover offer of Murray Goulburn accepted by the ACCC (Australian Competition and Consumer Commission). Despite the ACCC raising concerns about competition in the south-west Victorian milk market, after two intense periods of consultation, the ACCC has decided to allow the sale to proceed following some intervention from Saputo. Given that both Saputo and Murray Goulburn own large dairy factories near Warrnambool (amounting to two-thirds of the milk produced in the region), Saputo agreed to divest Murray Goulburn’s Koroit plant in a bid to remedy its “unfair” market power in the region.

Under a strict timeline from the ACCC (estimated to be between 3-6 months), Saputo is under considerable pressure to divest the coveted Koroit plant (one of Murray Goulburn’s top three operating assets) quickly in order to avoid a fire sale. Adviser Moelis & Company has already begun scoping out the sale by running a two stage process – firstly inviting offers for the Koroit plant before providing a dataroom for the shortlisted bidders. Sources suggest that Saputo are targeting a price range of $200-$250 million for the Koroit plant, the “crown jewel” of the beleaguered Murray Goulburn.

AustralianSuper and BGH Capital Resuscitate Hospital Giant, Healthscope

BGH Capital, as part of a private equity led consortium has filed an “opportunistic” $4.1 billion offer for Healthscope, Australia’s second largest private hospital operator. BGH Capital along with Singaporean sovereign wealth fund GIC, two Canadian pension funds and most interestingly, our very own AustralianSuper have formed alliances in an attempt to bring Healthscope back to profitability. In offering $2.36 a share, a 16% premium, the consortium wants to privatise Healthscope, should the deal go ahead. Ben Gray, founder of BGH Capital, is well acquainted with Healthscope, having been involved in its previous float as MD at private equity heavyweight, TPG Capital.

AustralianSuper, Healthscope’s largest shareholder at 14% ownership, has vowed to use its voting power to push through the consortium bid led by BGH Capital and reject any alternative offers for Healthscope, putting significant pressure on the Healthscope board (which has remained publicly silent throughout this process) to go ahead with the takeover. To add further complications to the current state of affairs at Healthscope, Canadian property trust NorthWest has recently purchased a 10% stake in the company via a derivative arranged by Deutsche Bank.

Reece Group Fulfills American Dream

ASX listed Reece Group, Australia’s largest plumbing and bathroom products company, has acquired US based MORSCO for $1.9 billion (advised by J.P. Morgan). Given their Australian dominance, Reece Group set out to pursue growth opportunities in the US. With the US bathroom and plumbing supplies market growing at twice the rate in Australia, Reece Group has finally realised its American dream. Having been in talks with MORSCO and Advent International (private equity owners of MORSCO) for two years, Reece Group finally locked down the acquisition. With MORSCO operating 171 stores in 16 US states, this transaction provides Reece Group with a strategic platform to leverage the growing US market.

In order to fund this purchase, Reece Group will be raising $560 million in capital, namely a $139 million institutional placement and $421 million non renounceable entitlement offer. The equity raising will be done at $9.30 per share, a 13.5% discount to the last trading price of $10.75. The Wilson family, owners of Reece Group since 1969, will invest $300 million into the company as part of its sub-underwriting commitment to the entitlement offer. As a result, the Wilson family stake in Reece Group will marginally decline from 76% to 74%. Interestingly, this is the first time Reece Group has raised capital since the Wilson family gained control of the company.


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