You Sold Your Tassal To Who?
You Sold Your Tassal To Who?
Whoa … I didn’t see that one coming. I turned on my computer this morning and saw a headline for Tasmanian salmon farmer Tassal Group: ‘WBA: Sale of TGR Shares’.
WBA is the ASX code for Webster Limited, an agricultural company that owned 19.8% of Tassal and has been very public about its wishes to dispose of the stake.
Following yesterday’s announcement that private equity group PEP was interested in buying Tassal, I was expecting the Webster announcement to be a sale to PEP, or another private equity group.
So it came as something of a shock to read that Webster has sold its stake to ‘Pacific Andes Resources Development Limited’. Who?
Upon investigation, it’s not as strange as it seems at first glance. The acquirer is part of Pacific Andes International, one of the world’s largest seafood businesses. But it’s a blow for any shareholders hoping for a bidding war, and it’s going to make them even less happy with the board.
The Financial Review this morning reported that the sale might actually ignite a bidding war. Who is going to bid against a 20% shareholder that, presumably, has no interest in a quick 20% or 30% gain? While Webster was there as a very keen seller, private equity had the perfect springboard for an unsolicited bid.
Hong-Kong based Pacific Andes, though, looks like the perfect white knight for a board that has already indicated they have no interest in recommending a bid at anything like the current price. With its Asian distribution networks, Pacific Andes might be a good long-term partner for Tassal. But I reckon PEP and any other financial buyers will be closing their fancy valuation models for good.
Custom Search 2
Comments
Hats off to Webster in that case, because it seems that they achieved a fair price for business that is set for substantial deterioration.
IMO, Tassal is a reasonably well run business with mediocre economics and no meaningful business moat.
Fish farming, like other types of intensive meat production is basically the process by which small wild fish like anchovies for which human (ie high margin) demand is limited are converted into larger, more profitable meat-bearing animals.
The problem I see for Tassal is that they are currently enjoying a "Goldilocks period" of high prices for their end product (which has been subtantially fished out of existence in the wild), whilst the cost of their main input is still quite low (although it is unlikely to stay that way).
Add to this the fact that consumers are still completely naive of both the environmental devastation that fish-farming causes and the nasty chemical dyes that need to be added to farmed salmon to make it look vaguely like wild salmon, which means that Tassal's products don't suffer from the inferior pricing perception that they deserve.
All that is needed to wreck Tassal's reputation is one day without much newsflow where some newspaper editor or network exec decides to run some headline other than the usual "Cat Stuck in Tree" type of story that usually dominates low-newsflow days.
When you're talking about a leveraged business that should encounter higher costs and potentially lower revenues over the long term a forecast PER of >10 doesn't look at all cheap.
PS A good film for anyone wanting to better understand the fisheries industry is "The End of the Line".
I have looked at Tassal a couple of times and as an outsider they seem to make some sensible decisions. BUT as soon as I look at their dividend policy of having an underwritten DRP that is unfranked it indicates to me the board needs to be sacked ASAP. What else are they doing thats foolish??
Quite agree with Jason. The company has repeatedly inflicted an unnecessary tax bill on shareholders through the underwritten unfranked DRP and has now, agsainst the wishes of holders of 35% of its shares, refused to engage with a potential bidder. I can understand Webster's frustration.
Shouldn't it be "to whom"?
If a bid is unlikely what are your thoughts on the value of the underlying business Steve? I believe the fund did hold it but I don't know if it still does. I'll understand if you don't want to disclose this but if you could provide some thoughts on the business would be appreciated.
Thanks in advance,
Rob
Post new comment