September 21, 2010

The acquisition of MW Brands Holdings SAS (MWB) made Thai Union Frozen Products (TUF) to revise its 2010 and 2011 earnings forecasts up, as well as fair value.

Shareholders approved the takeover of French-based MWB on September 2. TUF will consolidate MWB in December at the end of TUF's next accounting period in December. Considering that the company is Europe's top seafood company and will contribute 22-25% of TUF's total net profit over the next three years while the sales contribution will come to roughly 20% of total sales of the group, the acquisition provides a significant boost to TUF's earnings visibility going forward. To factor this in, net earnings forecast for 2011 is revised up by 28% and for 2012 by 33%.

The acquisition will total 680 million euros (US$893.4 million), to be totally financed by longterm loans (6-8 years) from domestic and foreign banks. After the deal, TUF will in effect refinance its domestic loans by issuing new rights offering and private placement shares by December, and a conversion of convertible debentures is expected to occur in 2012.

According to TUF's loan covenants with domestic institutions; its dividend payment per year is limited to 50% of net profit. The limit will be released once TUF repays half of the loan amount. The payout ratio will decline to 19%-24% over the next three years before returning to a normal level of 50% in 2015.

TUF announced it will increase capital via a rights offering of 44.16 million shares and a private placement of 29.81 million shares by the end of this year (price to be determined via book building). Based on a total of roughly 117 million new shares the dilution effect will be only 12%.

A Buy rating is maintained on TUF to reflect potential earnings growth over the next five years from MWB. The acquisition will result in synergy and in TUF expanding into the premium market.