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Chinese to Get Big Price Break from Apax on Israeli Tnuva

Photo Tamar Mazafi- Tnuva 575.20121107T110746


One month after Chinese food corporation Bright Food demanded a reduction of hundreds of millions of shekels in the value of the deal for acquiring a controlling share in Israeli food company Tnuva Food Industries Ltd., Bright Food and Apax Partners have reached agreement on the price adjustments for the deal, and this week signed a document specifying them, sources inform “Globes.” The signing is another step in the implementation of the acquisition, and also makes it possible to obtain the last of five required approvals of the deal by the Chinese antitrust authorities. This approval sets out the deal’s actual structure.

A source close to the deal told “Globes” that following the adjustments, the value of Tnuva was in the NIS 8.4-8.6 billion range. Bright Food was demanding a substantial reduction in the deal price, relying on various adjustment clauses, because of, among other things, changes that took place in Tnuva since the parties signed an initial MOU. These clauses concern the amount of debt, Tnuva’s declining performance, etc. Apax argued, on the other hand, that there were other adjustment clauses likely to the offset the demand for a price reduction.

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The parties reached agreement before the Chinese National Day-Golden Week on October 1-7, because the postponed date for completing the deal was set at October 5, 2014.

The parties agreed in advance that if Bright Food did not obtain the regulatory approvals required in China , each party would be entitled to postpone completion of the deal by an additional three months, i.e. until January 5, 2015.

It is now believed that actual completion of the deal will take place by the end of the current year, at which time Bright Food is due to pay Apax the proceeds of the deal in cash.

Talking with “Globes, ” a source close to the deal completely denied the reports of a dispute between the parties concerning a dividend. He said, “The matter of the dividend is irrelevant. The Chinese are buying the parent company, and if Tnuva distributes a NIS 400 million dividend, the money will therefore remain in the parent company. The assumption in the reports that the dividend would have left the parent company is simply incorrect.”

In May 2014, Bright Food signed an agreement to acquire a 56.1% controlling interest in Tnuva from Apax by acquiring its parent company, through which Apax controls Tnuva, at an $2.38 billion value for Tnuva. The kibbutzim (collective settlements) and moshavim (cooperative settlements), which own 23.2% of Tnuva, and Mivtach-Shmair, which owns 20.7%, are close to agreement with Bright Food on the terms for joining the sale.

The deal for acquisition of control in Tnuva is part of the Chinese government-owned company’s strategy. Bright Food has made several acquisitions of food companies around the world in recent years, and is looking for more. The company, which failed in its attempt to buy global company Yoplait, is seeking to expand its international business, and is expected to make many more investments. In this respect, the acquisition of Tnuva matches its strategy very well.

Tnuva’s reports for the first half of the year, which showed a drop in revenue and operating profit, were the basis for the demand for a reduction in value, together with the harm done to Tnuva’s sales by Operation Protective Edge and the general economic slowdown in Israel.

Tnuva’s first half revenue was down 3.8% to $958 million. The decline in revenue was mainly due to the government’s decision to introduce price controls for white cheese and sweet cream, but also to falling sales of eggs, a product subject to price controls that generates relatively low profits, and of Tnuva’s beef.

Despite the drop in revenue, Tnuva managed to improve its gross profit, thanks to a decrease in median input prices. The company’s gross profit margin rose from 26.8% to 28.5% in the first half of the year.

Tnuva’s first half net profit was $47.7 million, down 20%, compared with the corresponding period last year. Tnuva explained that this decline resulted from substantial real estate revenue in the corresponding period last year, offset by a fall in the group’s financing expenses. Tnuva’s second quarter net profit was down 33% to $23.6 million.

Apax and Bright Food declined to respond to the report.

Published by Globes [online], Israel business news –



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