FGV a takeover target ?

Speculation that world’s largest CPO company is being eyed resurfaces

THE world’s largest crude palm oil (CPO) producer, Felda Global Ventures Holdings Bhd (FGV), may be a takeover target.

According to sources, the parties interested in the world’s largest crude palm oil producer could include local plantation companies looking to expand their landbank.

This is not the first time there has been speculation that FGV could be a takeover target.

Just recently – about two months ago – there was talk about FGV undergoing a possible restructuring or a takeover after a report by International Palm Oil Monitor in April claimed that three parties were in talks with the company.

The news portal said the parties were interested in a takeover or a restructuring of FGV, with an announcement expected prior to the May 9 general election.

FGV has denied the report, saying there was “no truth” in the story.

Now, talk about FGV being a possible takeover target has resurfaced, with sources indicating that Sime Darby Plantation Bhd is already conducting due diligence on the company.

When contacted, however, Sime Darby Plantation said it is not doing due diligence on FGV, but declined to comment on whether it is looking to acquire existing local companies as part of its expansion strategy.

“As with any other companies, Sime Darby Plantation is always open to consider all potential opportunities in the interest of maximising value for our shareholders.

“However, we have no further comments to add with regards to any acquisition of existing local companies at the moment,” it said in a statement to StarBizWeek.

The company says its immediate priority is to create more value for shareholders with its existing asset portfolio.

While it has its share of problems, it is clear why FGV could be an attractive takeover target.

As at March 31, 2018, FGV has total assets worth RM20.13bil, and boasts a total landbank of 440,577 ha in Malaysia and Indonesia, including its rubber estates, 10 refineries and 69 mills.

It is also the country’s leading refined sugar producer, through listed subsidiary MSM Malaysia Holdings Bhd (MSM), commanding almost two-thirds of the domestic market share.

However, FGV is not without its problems. FGV was listed in 2012, and was among the world’s biggest IPOs at that time.

Today, its shares are trading at only RM1.55, a far cry from its IPO price of RM4.55 when listed in mid-2012 .

The share price has fallen over the years due to poor financial results, allegations of corruption, management changes and acquisitions that were too expensive and organisational restructuring.

Poor management in FGV was among its key issues, which ultimately led to its corner- stone investor, the Employees Provident Fund, making a full exit in early 2017.

In its plantation business, the main problem was its old trees.

When the company was first listed, almost 50% of its palm trees were 21 years old and above, and analysts often cited this as a big drag on the company’s yield performance.

However, FGV has been conducting aggressive replanting between 13,000 ha and 15,000 ha annually over the past six years, and expects to slash the percentage of its old trees (21 years and above) to 33% this year.

It says the percentage of its young and prime aged trees will increase to about 47% this year from 30% in 2012.

On the political front, the new federal government has stated that it will not interfere in the management of government-linked companies.

FGV group president and chief executive officer Datuk Zakaria Arshad ( pic) was recently quoted as saying that they had been assured there “will not be any more interference from politicians”.

This would be another major plus point for the company as it could significantly change public perception towards FGV.

Creating a giant

Hypothetically, a takeover or merger of the two companies – Sime Darby Plantation and FGV – would create a giant corporation, possibly the biggest in the global oil palm industry.

Sime Darby Plantation is the world’s largest oil palm plantation company by planted area, while FGV is the world’s largest CPO producer.

Ivy Ng, regional head of plantations research at CIMB Investment Bank Bhd, however, is of the opinion that Sime Darby Plantation is unlikely to enter an M&A at the moment.

“The company is looking at reducing its gearing and wants to focus on improving its business.

“From what we gather, M&A is not a top priority for Sime Darby Plantation now.

“Unless, of course, the deal is too good to refuse,” she tells StarBizWeek.

While the company may “take a look” at what FGV has to offer, whether it decides to pursue an acquisition is another issue, she says. “FGV’s estates are quite different from theirs and a takeover will significantly change how people look at Sime Darby Plantation. It also just came out of a demerger exercise very recently,” she says.

Ng also notes that as both companies are large, any M&A activity would take a lot of time away from Sime Darby Plantation’s focus on improving its business.

“We would be neutral on the move, if it happens, depending on the pricing,” she adds.

Another analyst, who declined to be named, says such a move would make more sense if FGV is privatised first, before any takeover is done.

“FGV’s yield is relatively low and it has a lot of legacy issues. It a takeover is done at this point, it is likely to be at a big discount and this would be met with a lot of objection from shareholders who would expect fair compensation,” he says.

A takeover, he says, would be “very challenging” and uphill task.

“FGV should be privatised, restructured, and only then should they look at the possibility of an M&A,” he says.

Back in January 2017, there was talk about the possibility of FGV being privatised when Tan Sri Shahrir Samad, who had just been appointed Felda chairman at the time, said the option of delisting FGV was a possibility.

He was quoted as saying that Felda would first gather all opinions and consider all options available as well as weigh the risks involved in pursuing such an exercise.

Later in June, he said the matter was discussed in the initial stages, but “did not think it was necessary at this juncture”.