October 11, 2017

Australian almond grower Select Harvests has rejected a takeover bid of A$430.6 million (US$334 million) presented by the United Arab Emirates sovereign wealth fund, Mubadala Investment Company.

The “highly conditional” offer was for 100 percent of the almond grower, and amounted to a per share bid of A$5.85 (US$4.56), or 39 percent above the company’s closing value on October 4.

Select Harvests, which sells brands including Lucky, Sunsol, and Soland, has grown to become one of the largest nut producers in Australia. After posting record breaking profits in 2014, the company went on to acquire three properties and water entitlements located in Victoria and Southern Australia for A$59 million (US$46 million) – two operating almond orchards: Amaroo, with 2,046 acres, and Grewal with 435 acres. The third was a greenfield property consisting of 1,600 plantable acres, for a total of 4,460 acres.

However, Select Harvests rejected the offer citing numerous causes including claiming that the bid was “significantly undervalued”, also, the company claimed there existed “potential risks associated with regulatory approvals”.  Additionally, Select Harvests stated that its rejection was due to the “potential disruptive due diligence”, the required exclusivity that the Board was not prepared to provide, and most importantly, the requirement that Select Harvests remain “in stasis”, meaning it would be required to suspend all distributions to shareholders or changes in capital structure over an extended period.

Mubadala commented to Reuters stating that it noted Australia as a high-potential market and agriculture as a high-potential sector, telling the publication in an email, “As always, we are continuously assessing promising investment opportunities that align with our portfolio and mandate of diversification.”

Raising Funds

Upon news of Select Harvests’ rejection, the value of the company’s shares climbed 25.5 percent to A$5.27 (US$4.11) after the announcement became public. This is good news for the company, as it also announced at the same time its strategic plan to raise a total A$65 million (US$50.7 million) via an institutional placement and a share purchase plan.

The company announced to the Australian Securities Exchange (ASX) the successful completion of a significantly oversubscribed institutional placement that issued 10.7 million shares to existing shareholders, raising A$45 million (US$35 million).

The institutional placement will be followed by a Share Purchase Plan (SPP), through which the company will offer share to smaller eligible Australian and New Zealand-based shareholders, which is expected to raise another A$20 million.

The company plans to use the capital raised to rebalance and reduce its gearing ratio from 37.6 percent to 12.3 percent, or if including finance leases, to reduce it from 52.5 percent to 24.4 percent.

“We are pleased to announce the successful completion of the Institutional Placement, which was targeted to existing shareholders and significantly oversubscribed,” said Paul Thompson, managing director, Select Harvests. “Together with the SPP, the new capital will strengthen the Company’s balance sheet and provide the financial strength and flexibility to pursue our strategy of optimizing our investments in productive long-term growth assets.”

The fundraising and need to strengthen its balance sheet is due in part to the significant investment earlier this year when Select Harvests agreed in March to acquire Jubilee Almond Orchards located in South Australia, and a 22 percent stake in Laragon Processing – an almond hulling and shelling facility, for a total consideration of A$26.5 million (US$20.7 million).

This latest acquisition of the Jubilee Orchards includes 792 acres of bearing trees, 355 acres of non-bearing trees, and 1,135 ML of water entitlements. The property produces Fritz, Peerless, Price, Nu Plus Ultra, Carmel, and Nonpareil varieties of almonds, and is expected to lift Select Harvests’ production volumes by 1,400 tons per year. The deal also included the acquisition of a 22 percent stake in Laragon Processing, located at Lindsay Point, Victoria, which has the capacity to process 10,000 tons of almonds per year.

This deal is the latest in a wave of expansionary moves by Select Harvests, which aims to increase production to 20,000 tons per year by 2019/20 to meet rising demand.

Over the past 10 years tree nut consumption has climbed by 59 percent, with almond accounting for the highest growth at 94 percent over the same time period. High-income countries (HIC) continue to account for 56 percent of consumption, while consumption in middle-income countries (MIC) has doubled over the last decade. Continuing this trend, as wealth increases in some of the world’s largest emerging markets including China, Thailand, India, Indonesia, low levels of almond consumption are expected to show rapid increases over the next decade, according to Select Harvests.

-Lynda Kiernan