May 31, 2021

Breakingviews: Nutty berry deal sows competitive seeds Down Under

by Breakingviews.

In a world where copper and iron ore prices are skyrocketing, who knew that Australian blueberries and limes were also a hot commodity? The months-long takeover battle for fruit-farm owner Vitalharvest Freehold Trust may not have the heft of the A$7 billion ($5.4 billion) dustup over casino operator Crown Resorts or the A$4 billion takeover tussle for parts of gambling business Tabcorp, but it is the most fertile example of a newfound penchant for competitive M&A Down Under.

Contested deals are growing quickly from a low base. Last year was the busiest in at least a decade with 15 targeted Australian companies attracting at least two suitors, per Dealogic data. That figure already stands at a dozen in 2021. And at a combined $23 billion they account for more than five times last year’s volume and some 40% of this year’s total deal flow.

Several factors are contributing to the contentiousness. Business confidence has hit successive record highs, per a closely watched National Australia Bank survey. There’s ample debt and equity financing. Buyout shops including Blackstone, which is in the hunt for Crown, and KKR have been more active in Australia, while local pension-fund giants such as AustralianSuper have started chasing assets directly, too. And with new advisory firms like Barrenjoey on the scene, more bankers are bending the ears of emboldened chief executives.

Most of the action looks financially defensible so far, with one exception. Vitalharvest has received 16 ping-ponging bids from two eager buyers. Roc Partners just nipped ahead with a A$354 million offer, but a Macquarie investment division should have the upper hand: It locked in almost a fifth of its quarry early in the process and already rents land to Vitalharvest’s tenant, Costa Group.

The battle now values the owner of one of the country’s largest portfolios of citrus and berry farms 29% higher than the first salvo and some 65% beyond its net tangible asset value, excluding water rights. That’ll eat into the agricultural asset’s attractiveness as an inflation hedge and reduce financial wiggle room as climate change worsens both water scarcity and bushfire severity. The danger is that other heated M&A fights similarly juice up prices that sour returns.

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BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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