February 12, 2014
Bright Food is in talks with British private equity fund Apax to buy all of its shares of Israel's biggest food maker Tnuva, which produces cottage cheese and other dairy products.
Apax owns 73.1% of the holding company that owns more than three-quarters of Tnuva, and the deal values the company at ILS8.8 billion (US$2.5 billion). News of the arrival of executives from Bright Food Group to Israel caused shares of Mivtach Shamir, the Israeli holding company that owns the other 27% of the holding company, to rally on the Tel Aviv Stock Exchange.
One of the complications of the acquisition is the possible controversy about a foreign food company gaining control of Israel's biggest food maker. As a result, the sides are seeking a structure that would prevent Bright Food from exercising direct control over Tnuva.
As part of the deal, Bright Food may sell a 12% block of shares in the holding company to Mivtach Shamir, which would increase the Israeli company's stake in Tnuva to 30%. Bright Food may also agree to the appointing of a majority of Israeli directors on the board of Tnuva and naming Meir Shamir, the controlling shareholder of Mivtach Shamir, as chairman in order to moderate the public's objections to the deal.
Ge Junjie, vice president of Bright Food, said that the company is aiming for overseas assets to account for 25% of its total in three years' time, double what it is today.
At the same time, Apax Israel, which is headed by Zehavit Cohen, is advancing a plan to issue Tnuva shares for trading on the TASE. The plan for an initial public offering (IPO) was approved by Tnuva's board in mid-January, but Cohen prefers selling the company to Bright Food and wants to exhaust that option before settling on an IPO. Apax would prefer to sell off all its Tnuva shares, as the Bright Food sale would enable, while in an IPO it would take longer because the market couldn't absorb all the stock at once. In addition, the kibbutzim and moshavim that own the other 23% of Tnuva, represented by the chairman of the Granot organisation, Yitzhak Bader, objects to an IPO and could complicate or at the very least delay it.
The sale of control of Tnuva to Bright Food would yield Apax a US$1.2 billion profit on its investment in Tnuva. Apax and Mivtach Shamir bought control of the company in 2008 at a company value of US$989 million. Apart from selling the stake now at a US$2.5 billion valuation, Tnuva has over the years distributed dividends totalling US$650 million.
Bright Food, which is controlled by the Chinese government, had turnover of US$7 billion in 2011. It is China's second-largest food company and has four publicly traded subsidiaries, including Food & Bright Dairy.