Kulim unveils $255m plan to lift New Britain stake

Kulim, the plantations-to-shipping group which floated New Britain Palm Oil six years ago, received a cautious response from the palm oil group's investors for $255m plans to turn it back into a subsidiary.

Kulim - which sold off an initial 25% of New Britain Palm Oil at the IPO in 2007, and has since allowed its stake to fall to 49% - said it was to rebuild its holding to 69% though an offer to shareholders in the London-listed group.

Malaysian-based Kulim offered 550p per share in cash for the up to 30.0m New Britain Palm Oil shares, a 14.6% premium to the closing price on Wednesday, at a cost of about £165.1m ($255m).

The proposed offer "represents a vote of confidence in New Britain Palm Oil, its board of directors, leadership team and talented employees, as well as the products and services it brings to the market," Kamaruzzaman Abu Kassim, the Kulim chairman, said.

The bid also represented a "vote of confidence in the growth prospects of Papua New Guinea", the operational base for New Britain Palm Oil, and whose second ranked shareholder, with an 8.0% stake, is the West New Britain provincial government.

'Enhance shareholder value'

Kulim's offer, which it said was due for completion in the second half of the year, had been long suspected by investors, after the group in December sold off interests in fast restaurant chains in a 5.1bn-ringgit deal, equivalent to $1.6bn at today's exchange rate.

Indeed, Kulim said that the deal, which would be financed from "internally generated funds" besides a credit line with an unnamed lender, was "in Iine with Kulim's strategy of enhancing its core plantation business".

"New Britain Palm Oil has been a significant contributor to the Kulim group's plantation earnings in the past," meaning the offer "will enable Kulim to capture a larger share of New Britain Palm Oil's financial results on consolidation," the Malaysian group said.

"Given New Britain Palm Oil's scale of operations and the maturity of its plantation estimate, the board of Kulim believes the proposed acquisition will contribute positively to Kulim's future earnings and enhance shareholder value in the long-term."

Why 20%?

However, the deal received a cautious response from New Britain Palm Oil, which said that it had "not received formal notification" of the offer, and said it would comment further after Kulim releases more details.

"It looks like an effort to buy New Britain Palm Oil on the cheap," one City source said, flagging the sub-15% premium, and the timing when shares in the group, which topped 900p two years ago, have been depressed by poor weather in Papua New Guinea besides a strong local currency, the kina, and a drop in palm oil prices.

"One question is why a 20% stake, rather than a smaller purchase or a bid for the whole lot," the source said.

Kulim's results have suffered from the reduction in its stake to 49% meaning it no longer consolidates New Britain Palm Oil results into its own, and the proposed offer is conditional on the holding being rebuilt beyond 50.0%.

'Reasonably attractive price'

The offer received a mixed welcome from investors, with Peel Hunt saying it would "recommend accepting the offer because of the prospect of reduced liquidity" in New Britain Palm Oil share trading assuming Kulim succeeded in taking its stake to 69%.

The proposed deal "provides a partial liquidity event for shareholders at a reasonably attractive price, given the current palm oil price", Peel Hunt analyst Charles Hall said.

"However, the downside is that it will increase Kulim's control, and reduce liquidity and any hopes of index inclusion."

'Lowball and opportunistic'

However, at Panmure Gordon, Graham Jones dismissed the bid as "lowball" and "opportunistic", with Kulim attempting to exploit the weather, currency and palm oil market headwinds.

"We note that all three factors are improving, and in our view the offer significantly undervalues the company," Mr Jones said, lifting his target price on New Britain Palm Oil shares to 650p from 550p and restating a "buy" recommendation.

The shares stood 6.8% higher at 505p in morning deals in London, well short of the level of Kulim's proposed offer.