Japfa disposes 80% stake in Greenfields Dairy for $393.9 mil

Felicia Tan
Felicia Tan12/7/2020 08:17 AM GMT+08  • 4 min read
Japfa disposes 80% stake in Greenfields Dairy for $393.9 mil
Earnings per share (EPS) for FY2019 ended December would have been 19.05 US cents instead of 6.45 US cents.
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Japfa announced on Dec 6 that it has entered into a conditional share purchase agreement (SPA) with Freshness Holdings and Freshness Limited to dispose its shares in Greenfields Dairy Singapore.

Greenfields Dairy Singapore is the holding company of Japfa’s “Greenfields” dairy business, which is a vertically integrated business that includes dairy farming to branded dairy products in Southeast Asia.

Greenfields Dairy’s wholly-owned subsidiaries are PT Greenfields Indonesia, Greenfields Dairy Malaysia and Greenfields Dairy Hong Kong Limited.

Freshness Holdings is owned by affiliates of leading global investment firm TPG and Northstar Group, a leading private equity fund manager in Southeast Asia.

Under the terms of the transaction, Japfa will sell 100% of its shares to Freshness Limited, representing 80% of the total number of shares in Greenfields Dairy, for a total consideration of US$295 million ($393.9 million).

Freshness Limited is an investment holding company incorporated for the purpose of holding the shares in Greenfields Dairy upon completion of the proposed transaction.

The total consideration comprises a cash component of US$236 million and a share component comprising 10,000 shares amounting to 20% of the share capital of Freshness Limited on a fully diluted basis at completion.

Following the completion of the transaction, Japfa will retain an indirect 20% stake through Freshness Limited in Greenfields Dairy.

According to Japfa, its dairy business has grown “considerably” in recent years with potential for further growth.

“To accelerate the next phase of development, a strategic partnership with a reputable and active investor can bring both funding and senior management expertise to further develop Dairy SEA,” it says in a statement via SGX.

Based on the consideration, the implied equity valuation of the Greenfields Dairy group is US$295 million, about four times the net asset value of the group of US$81.3 million as at Sept 30, 2020.

The implied enterprise value of the Greenfields Dairy group is US$334.7 million, which is about 21 times the earnings before interest, taxes, depreciation and amortization (EBITDA) of the group’s US$16.1 million for the FY ended Dec 31, 2019.

Japfa is expected to receive some US$244 million in cash comprising the cash proceeds from the proposed transaction of US$236 million and US$8 million from the repayment of shareholder loan by Greenfields Dairy following the transaction.

It currently intends to use US$150 million from the proceeds to declare and pay an interim dividend of 10 cents per share to its shareholders.

The balance will be used for the payment of transaction expenses, the repayment of existing bank loans, and general working capital and corporate purposes.

Had the proposed transaction been completed before the financial year ended Dec 31, 2019, Japfa’s consolidated net tangible assets (NTA) per share would have stood at 60 US cents (or 80 cents) instead of 46 US cents (or 62 cents).

Earnings per share (EPS) for FY2019 ended December would have been 19.05 US cents instead of 6.45 US cents.

Had the transaction been completed by Sept 30, 2020, Japfa’s consolidated NTA per share would have been 66 US cents (or 91 cents) instead of 56 US cents (76 cents).

Japfa’s CEO Tan Yong Nang says, “We are pleased to form this strategic partnership with TPG and Northstar to accelerate the next phase of development in Southeast Asia through their strong track record of developing consumer and retail businesses. In retaining a 20% stake in the Southeast Asia business, Japfa will continue to benefit from the upside potential.”

“The Proposed Transaction along with Japfa’s strategic partnership with Meiji announced earlier this year demonstrate Japfa’s ability to build scalable market leading businesses and unlock significant value for our shareholders. Based on both these strategic partnership transactions, the combined implied equity value of the dairy businesses across China and Southeast Asia is over US$1.3 billion,” he adds.

Credit Suisse (Singapore) Limited is the exclusive financial advisor to Japfa for this transaction.

Shares in Japfa closed 2 cents higher or 2.7% up at 77 cents on Dec 4.

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