Hart seeks advice on $1.3b snacks unit

Tom Degnan

Burns Philp has hired Deutsche Bank for advice on its remaining snack foods unit worth more than A$1.2 billion ($1.3 billion).

It said yesterday Deutsche Bank would advise billionaire Graeme Hart's company on "strategic options" for the unit, whose brands include Uncle Tobys and Bluebird.

UBS says Nestle, Unilever, Cadbury Schweppes and Mars may be among the bidders.

"International competitors looking to enter the Australasian market" may bid, said Atul Lele, at White Funds Management. Buyout firms may also bid "as the strong cashflow of the assets allows for a high degree of debt to fund the deal".

Selling the snack foods unit would complete Hart's disposal of Burns Philp's businesses and leave the company with more than A$3 billion of cash for new acquisitions. Last month, it sold its bakery, oils and spreads units in a A$2.1 billion sale of shares in Goodman Fielder, retaining a 20 per cent stake.

Chief executive Tom Degnan said in September Burns Philp planned to use funds from the Goodman Fielder sale for acquisitions and was looking at Australasia and North America.

Michael Peet, a UBS analyst in Sydney, expects the snack foods unit will sell for about 10 times forecast earnings before interest, tax, amortisation and depreciation in the 12 months ended June 30 of A$123.7 million. "We consider Nestle as a potential acquirer of Burns Philp's snacks divisions as it would allow them to gain significant market share within breakfast cereal category," Peet said.

Other potential bidders, Kellogg, the biggest US and Australian cereal maker, and closely held Sanitarium might be prevented from bidding because of antitrust concerns.

Scott Marshall, head of industrial research at Shaw Stockbroking, said the snack foods unit might yield a higher price.

A ratio "might be as high as 11 times [earnings] at a squeeze depending on the brands", he said.

In August, Hart's Rank Group bid $3.3 billion for Carter Holt Harvey. That offer closes today and Rank has so far acquired about 85 per cent.

Rank took control of Burns Philp after helping it stave off bankruptcy in 1997 and now has a majority stake.

Selling the snack foods unit may be Hart's fifth deal worth more than A$1 billion since 2003, including the CHH bid and Goodman Fielder IPO.

In 2003, Burns Philp acquired the snack food unit through the A$2.25 billion purchase of the former Goodman Fielder.

The next year Hart sold the company's international yeast and spice business to Associated British Foods for US$1.35 billion.

- BLOOMBERG