NYSE-listed Bunge Ltd has struck a deal to acquire the edible oil business of Noida-based diversified Amrit Group in a deal worth Rs 413 crore ($78 million). The deal would give Bunge, one of the world’s largest agri commodity traders, a key position in the north Indian edible oil market.
Under the deal, Bunge will acquire the edible oil business of the public-listed firm Amrit Banaspati Company Ltd (ABCL) for Rs 220.72 crore on a slump sale basis.
The sale would include the entire edible oil business of ABCL including manufacturing, marketing and distribution of vanaspati, refined and filtered edible oil, bakery shortening, table margarine & speciality fats, and salt & soya nuggets. The company owns a manufacturing unit located at Rajpura in Punjab.
Bunge will also acquire secured and unsecured loans of ABCL amounting to Rs 40.6 crore besides paying the key promoters Naresh Kumar Bajaj, Ashwini Kumar Bajaj and Vikram Kumar Bajaj a sum of Rs 47 crore as non-compete fee for the next five years.
Among the various brands marketed by ABCL, there is also Gagan, owned by a separate public-listed group firm Amrit Corp. As a part of the deal, Bunge is also acquiring the Gagan brand for Rs 104.5 crore from Amrit Corp.
The overall edible oil business of ABCL employs 450 people; features brands like Gagan, Ginni, Amrit, Bansari and MerriGold and generates most of the sales. The firm clocked sales of Rs 1,010 crore for the year ended March 31, 2011, with net profit of Rs 22.06 crore.
For Bunge, this will be a big boost to its India business as it already owns key oil brands like Dalda. The company has been present in India for around a decade and has manufacturing units at Trichy in Tamil Nadu and Bundi in Rajasthan.
Amrit Group’s decision to exit a well-established business is marked by business fundamentals as edible oil is a thin-margin business and ABCL has been operating on full-capacity utilisation for the last couple of years. Growth would have meant addition to capacity and, therefore, further investments.
The edible oil business in India is inherently dependent on palm oil imports and associated with currency risks. In such a scenario, entry of MNCs like Cargill, Bunge, Noble Grain, LouisDreyfus and ADM meant local players were at a disadvantage, compared to the global biggies with backward and forward linkages due to their access to global plantations.
What It Means For Amrit Group
Analysts would fret over the company (ABCL) selling almost its entire business to Bunge that would virtually leave the firm with a clean slate (its non-edible oil business contributed less than 10 per cent of overall sales in FY11). Since it is a business sale and Bunge is not acquiring ABCL, the deal would not trigger the open offer clause to provide an exit route to minority shareholders of the public-listed firm. This comes after a string of various such deals where the acquirer managed to get around the rigours of making an open offer by acquiring a business unit.
Sale of the edible oil business will leave ABCL with commodities trading business and the company has said that it will also explore entry into real estate, among other businesses.
ABCL scrip shot up 6.5 per cent to close at Rs 245 a share on the BSE on Wednesday. At this price, the company has a market cap of around Rs 180 crore or a little less than what it is going to get as a part of the business sale. As per ABCL’s last shareholding disclosure, it has negligible institutional shareholding and the company is largely owned by the promoters besides HNIs and the public.
Amrit Corp scrip also shot up 18.5 per cent to close at Rs 301.3 a share on Wednesday. The company has a market cap of just around Rs 96 crore, again less than what it will get as a part of the trademark sale of Gagan.
Amrit Corp owns the Gagan trademark for edible oil, as well as milk. As per the understanding with Bunge, the company will continue to use the brand for the milk business, subject to the condition that it will initiate a process to change the brand in two years and completely switch to the new brand within four years.
Amrit Corp (formerly Amrit Banaspati Company Ltd) is the flagship holding company of the Amrit Group. Founded in 1940, the group set up various businesses including edible oils, writing & printing paper, dairy milk & milk products, real estate and services.
It went through a major restructuring a few years ago under which the paper business, along with its assets & liabilities, was demerged into a separate company called ABC Paper Ltd while the edible oils & FMCG commodities business, along with its assets & liabilities, was consolidated with Amrit Enterprises Ltd (now renamed as Amrit Banaspati Company Ltd).
After this move, Amrit Corp was left with such businesses as UHT dairy milk, flavoured milk, dairy mixes and milk/milk-based products; real estate development; corporate & strategic advisory services and BPO/back-office services for the group companies, besides the ownership of the flagship Gagan brand and the corporate logo.