Indofood to cuts purchase price

JAKARTA (JP): The Salim Group's publicly listed Indofood Sukses Makmur has cut the price of buying its sister companies from Rp 1.7 trillion to Rp 1.5 trillion (US$633 million).

The company's chief executive officer, Eva Riyanti Hutapea, said yesterday the Rp 200 billion reduction was because the cost of its oil palm plantation purchase had been cut.

She said the price for oil palm plantations was reduced from Rp 1.25 trillion to Rp 1.05 trillion.

"Overall the new acquisition price is at an average of 8.9 times 1997 prospective earnings," she said.

Hutapea said she was optimistic prospective earnings per share for 1997 on a fully diluted basis would be much higher than the initial target.

The company's internal acquisition plan drew a lukewarm reaction from investors.

Its share price dropped last week because investors were concerned about the cost of the acquisition plan and the impact of a proposed rights issue to buy its sister companies.

Hutapea said the plan to buy the group's edible oil and fat plantations and distributors was aimed at strengthening its branded consumer packaged foods business.

Indofood, which is listed on the Jakarta Stock Exchange, expects over Rp 5 trillion ($2.07 billion) in net sales from the acquisition.

She estimated net profit would increase by over 45 percent and earnings per share by close to 20 percent this year because the cost of Indofood's integrated operations would be greatly reduced.

To finance the acquisition, a five-for-one share issue would be used instead of a four-for-one issue as originally planned, she said.

She said the new shares would be issued at Rp 3,300 each.

The proposed acquisition would improve the efficiency and the productivity of he group's plantations, she said.

She said without the plantations, Indofood would face difficulties finding quality CPO source of sufficient volume and price needed in the long term.

"With increasing demand for vegetable cooking and a commodity market share position of over 55 percent for branded cooking oil, the supply of CPO is critical," she said.

The cyclical production of CPO in Indonesia caused the government to semibuffer its price during low harvest seasons to prevent a shortage and price escalation, she said.

She said the existing tax on CPO, which could be lifted at any time, also affected the commodity's availability in the domestic market. (hen)