That earnings-multiple does not seem high on first glance, but if Del Monte can t improve operating

Del Monte Pacific Limited (SGX: D03) announced that it is going to acquire the consumer food business of Del Monte Foods for US$1.675b, subject 2 card monte to regulatory approvals and customary closing conditions . Del Monte Pacific Limited (Del Monte) is dual-listed on the Singapore Mainboard and the Philippine Stock Exchange. Its products include canned pineapple and tropical […]
Del Monte Pacific Limited (SGX: D03) announced that it is going to acquire the consumer food business 2 card monte of Del Monte Foods for US$1.675b, 2 card monte subject to regulatory approvals and customary closing conditions .
Del Monte Pacific Limited (Del Monte) is dual-listed on the Singapore Mainboard and the Philippine Stock Exchange . Its products include canned pineapple and tropical fruits, ketchups, fruit juices, and processed vegetables. 2 card monte It also owns the world s largest fully integrated pineapple operation that consists of 700,000 2 card monte tons of processing capacity and a 23,000 hectare plantation.
Del Monte Pacific said it would finance the acquisition with: US$80m from the company s existing cash balance US$350m from the issuance of perpetual preference shares US$150m from the issuance of common shares US$165m from a loan that NutriAsia Pacific Limited majority shareholder of Del Monte with a roughly 80% stake has committed to assist [Del Monte] US$930m from the issuance of debt to institutions an additional US$350m loan for working capital needs only if Del Monte would require it
DMF s consumer food business enjoys leading positions in large and profitable categories that include #1 branded market share positions in the U.S. in major canned fruit and vegetable categories and #2 positions in canned tomato and broth categories.
Ronaldo Gapud, chairman of Del Monte s board, commented that the acquisition provides the company greater access to a well-established, attractive and profitable branded consumer 2 card monte food business in the world s biggest market [in the USA]. The States was a market 2 card monte that Del Monte did not have any meaningful presence in previously.
If we work with Del Monte s financial numbers for the 12 months ended 31 Dec 2012 and assume that the acquisition was completed by then, the company s net gearing will have increased from 0.46 to 4.1. This creates additional financial risks for the company 2 card monte s investors.
There s also the need to consider whether Del Monte has overpaid 2 card monte for this acquisition. Here are some of the financial numbers for DMF s consumer food business: Financial 2 card monte Year ended April 30, 2011* 2012* 2013* Sales US$1.88b US$1.81b US$1.83b Cost of Goods Sold (US$1.41b) (US$1.40b) (US$1.407b) Operating Expenses (US$127m) (US$124m) (US$147m) Selling, General & Administrative Expenses (US$139m) (US$132m) (US$144m) Other Income/Expense US$1m US$1m US$2m Operating Income US$202m US$157m US$135m
We can see that the consumer food business s operating income has fallen steadily over its last three financial years. Based on current numbers, Del Monte is paying $12.4 for every dollar of the consumer food business s operating income.
That earnings-multiple does not seem high on first glance, but if Del Monte can t improve operating efficiencies and the declining trend in operating income continues, the acquisition might turn out to be an expensive mistake.
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Del Monte Pacific Limited (SGX: D03) announced that it is going to acquire the consumer food business of Del Monte Foods for US$1.675b, subject to “regulatory approvals and customary closing conditions”. Del Monte Pacific Limited (Del Monte) is dual-listed on the Singapore Mainboard and the Philippine Stock Exchange. Its products 2 card monte include canned pineapple and tropical fruits, ketchups, fruit juices, and processed vegetables. It also owns the world’s largest fully integrated pineapple operation that consists of 700,000 tons of processing capacity and a 23,000 hectare plantation. Del Monte Foods (DMF) is a US-based company…
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