Australia Focus: Inghams chicken float

Fund managers squawked at the Inghams price and (below) CBA chief Ian Narev's diversity bonus has been knocked back. Photo / NZME, Bloomberg

Another piece of good news for Australian shareholders was the Inghams chicken float.

When private equity firm TPG fronted up to fund managers with the chicken grower a few weeks ago it found there wasn't the demand it had hoped for.

Investors were concerned the growth prospects for Inghams - Australia and New Zealand's largest integrated poultry producer with the number one and number two position in the market respectively - were not as strong as laid out in the prospectus.

TPG had argued that chicken was forming an ever larger part of our protein intake, so Inghams' prospects were assured.

Fund managers, however, were concerned that Inghams is selling a commoditised product to supermarkets, which gives the supermarkets all of the bargaining power and raises questions about where its growth was going to come from.

The private equity firm had been hawking the stock around with a price range of A$3.57 to A$4.14 a share, but when it came to market they had slashed this to just A$3.15 apiece due to weak demand.

But along with concerns about earnings, there was another factor crimping demand for the stock - a sour sentiment towards companies floated by private equity funds.

In recent years private equity funds have pocketed huge profits from flogging off a range of companies which have either underperformed, such as Spotless Group, or failed altogether, such as Dick Smith.

TPG was the owner of the poorly performing Myer, which it sold to investors at A$4.10 a share in 2009, making a A$1.5 billion profit.

Investors, meanwhile, have been left with shares languishing at about A$1.10.

The fund had originally planned to retain as little as 24 per cent of Inghams, but in the end retained 47 per cent.

Presumably this was to give investors more reassurance that TPG's interests were aligned with their own.

It is pleasing that private equity firms are starting to respond to investor demand for a better deal on floats and that investors are being more sceptical.