Investors hail First Pacific plan to buy Indofood stake

Investors hail First Pacific plan to buy Indofood stake

HONG KONG (Dow Jones): Investors reacted positively on Wednesday to First Pacific Ltd.'s plan to buy a 40 percent stake in PT Indofood Sukses Makmur of Indonesia for US$650 million from the Salim Group (P.SLM), its parent company.

The company's shares rose 3 percent, or 20 cents, to HK$6.85 in the morning trade.

The Hong Kong-based conglomerate announced Tuesday it will take a 40 percent stake in Indonesia's biggest noodle-maker and will launch a share placement to help finance the deal.

Analysts said the deal is quite attractive for First Pacific, which is acquiring a reputation as a strong recovery play at a good price.

"The deal is sweet indeed," said Mark Simpson, head of research at Nomura International Ltd., who said he upgraded the stock to a "buy" from a "hold" after the Indofood acquisition was announced.

"The deal itself is attractive" Simpson said, and it also offers investors "quite a good play on the Southeast Asian recovery through a liquid Hong Kong stock."

The Hong Kong company made a bid for 30 percent of Indofood in December with Nissin Food Products Co. of Japan, which was also to acquire 30 percent of the Indonesian company. But that deal fell through in April, prompting First Pacific to make the bid alone in a move that will effectively give it control of Indofood, producer of about eight billion packs of noodles a year.

First Pacific plans to buy the 40 percent stake in two transactions. First, it will buy 549 million Indofood shares, or 30 percent of the company, for US$379 million, which works out to 5,000 rupiah a share. While the overall price is higher than the US$285 million offered in December because of a rise in First Pacific's stock price, the terms are identical to those of the failed bid: First Pacific will pay $150 million in cash and finance the rest by issuing 261 million new First Pacific shares to the Salim family at HK$6.79 each.

In the second transaction, First Pacific will buy the remaining 10 percent, or 183 million shares, for US$271 million in cash. That values the Indofood shares in the second block at 10,730 rupiah each. First Pacific said it is willing to pay more for the additional 10 percent, because it acquires control with this tranche.

First Pacific will place 254 million new shares valued at US$200 million with institutional investors and issue a US$50 million seven-year convertible bond to help finance the cash portion of the plan. The shares were placed at HK$6.23 each in a deal handled by ING Barings Securities (HK) Ltd.

While most analysts said the price paid for the Indofood stake was attractive, there is some concern that the share price already reflects the acquisition with little upside left for the share.

Anil Daswani, head of research at Salomon Smith Barney, said he doesn't "see much upside" for First Pacific as the "acquisition is already priced into the share price."

After a flurry of asset sales and acquisitions in Asia, Daswani said, First Pacific has essentially become a three- company firm with the Philippines Long-Distance Telephone Co., Fort Bonifacio, a massive development project in the Philippines which it controls through its Philippines flagship Metro Pacific and Indofood, its primary assets.

He estimates the company's net asset value at around HK$7.00 and said First Pacific doesn't deserve to be traded at a premium to its net asset value.