February 9, 2011

New Zealand mulls Tegel Foods' purchase

New Zealand's overseas investment watchdog is reviewing the planned NZD605-million (US$466 million) acquisition of poultry firm Tegel Foods by Affinity Equity Partners in one of the largest awaited deals this year.

The purchase from Pacific Equity Partners, ANZ Capital, Australia's Lujeta PTY Ltd. and UK-based Intermediate Capital Group was reported earlier by the New Zealand's local news. The deal is worth NZD605 million (US$466 million), according to two persons familiar with the matter.

New Zealand's Overseas Investment Office confirmed that Affinity Equity Partners had applied for approval for the deal but declined to disclose a value for the investment. A spokeswoman for Tegel declined to comment and officials from Affinity didn't return messages.

"They are currently assessing the application," said Brad Young, a spokesman for the investment office.

Tegel is New Zealand's largest poultry producer with three major processing plants and a network of smaller facilities, feed mills and hatcheries. The company had earnings before interest, depreciation and amortisation of NZD79.6 million (US$61.44 million) in the year to June 30. It processes more than 500,000 birds a week.

At NZD605 million (US$466 million), the deal is likely to be one of the largest asset sales in New Zealand this year and comes at a time when many of the country's agricultural businesses are struggling with the high level of the currency, known as the Kiwi. Agricultural products account for two-thirds of exports, with dairy and livestock exports a major source of foreign exchange earnings.

To offset the effect of the Kiwi currency's appreciation, an uptick in global food prices has helped food exporters like Tegel maintain revenues. Across Asia, a mixture of poor weather, rising wealth and under-investment in farming has helped to push up food and produce prices of everything from wheat to rice and dairy. Some analysts blame low interest rates in the US, Japan and Europe, as investors use cheap financing to invest in globally traded commodities such as rice, sugar, cotton and oil, for driving the food prices higher.

Pacific Equity Partners purchased Tegel Foods for NZD250 million (US$192.96 million) in 2005 before selling off smaller stakes in the company.