Thai Union Group

Thai Union Group Plc (TU) 

 

What’s new? 

On 4 December 2015, TU announced that it had reached mutual agreement with Lion Capital, the seller of the Bumble Bee Foods, LLC (Bumble Bee Seafoods), to terminate the acquisition of Bumble Bee Seafoods. On 19 December 2014, TU had agreed to acquire Bumble Bee Seafoods and both TU and Lion Capital had declared the merits of the deal to the US Department of Justice (DOJ). Despite TU’s efforts to get this deal approved, both parties agreed that the share purchase process was unlikely to be concluded under the timeframe stipulated in the Share Purchase Agreement due to the higher complexity in the process and so the parties mutually agreed to scrap the deal. Going forward, TU will focus on its existing business and remains committed to the North American seafood market.

Overhanging concern over deal eliminated 

The news is well expected, given the unknown timeframe of the DOJ’s investigation and the high uncertainty over the deal’s outcome. Also, the deal had been further complicated by DOJ widening its probe into the packaged seafood industry through another DOJ unit. It remains unknown as to whether the DOJ’s industry investigation is in some way connected to the Bumble Bee deal acquisition. In light of various unknown factors, we think that it is in the best interests of TU, the seller and TU’s shareholders that TU terminated such a purchase. It will lift the overhanging concerns over TU’s share price and make TU focus on the next M&A deals in the pipeline during 2016-2020. 

Bumble Bee deal already factored out   

Before the announcement, we had already factored the Bumble Bee deal out of our projections and valuation since August, thanks to the greater uncertainty surrounding the deal’s completion. Hence, the recent outcome will not have any impact on our current financial projections and valuation. TU’s previous FY15 sales guidance of US$4.5-5bn, assumed to include the few months of Bumble Bee consolidation, is now unrealistic. We assume only US$3.7bn sales for FY15, which looks achievable without Bumble Bee sales. 

Next M&A deals expected in 2016

To achieve the sales target of US$8bn for 2020, it sets average sales growth of 15% per annum, 2016-2020, half from its organic business activities (such as value-added byproducts and the setting up of a global pet food care unit, food-service unit and global product innovation center) and the other half from M&A deals, a few of which we expect TU to announce in 2016, which might be worth US$200-500m each. Although the size of the M&A cannot be compared with Bumble Bee, we believe that it would be better off moving forward with the new deals rather than being stuck with Bumble Bee, which has an unknown timeframe. Our BUY rating stands, premised on its recurring business growth profile of 7-10% per annum and scope for growth upside from new M&A deals in the next five years.