Fraser and Neave, the Singapore-listed food and beverage company, paid $87 million on Monday for 15 million shares in Vietnamese dairy group Vinamilk, also known as Vietnam Dairy Products, making it one of the country's biggest equity deals of the past 10 years.
A small group of institutional shareholders sold the shares at Vnd123,333 each. Adjusted for a recent bonus issue and dividend, the price represented a 7.25% premium to Monday’s closing share price of Vnd115,000, according to a source close to the deal.
Foreigners looking to buy Vietnamese stocks are only allowed to purchase a limited amount of local stock, which is why F&N paid a premium, the source said.
F&N previously owned 9.54% of Vinamilk. Now the Lion City conglomerate owns 11.04%.
“[F&N] is a long-term strategic holder of the stock and Vinamilk is an entry into Vietnam,” the source told FinanceAsia.
Valuation
The price values Vinamilk at 18.5 times its 2014 earnings and, as such, came at a discount to other notable milk producers, including New Zealand’s Fonterra and France’s Danone Group. Danone is trading at 19.66 times its 2014 earnings while Fonterra is trading at 41.34 times its 2014 earnings, according to Bloomberg.
The share price performance of all three companies has been mediocre so far this year, with Vinamilk and Danone both up 2% and Fonterra up 6%, according to Bloomberg.
All three have nonetheless outperformed China Modern Dairy and China Huishan Dairy, which have lost 15% and 36%, respectively, over the same period.
The Chinese dairy sector has been weighted down by concerns on volatile raw milk average selling prices, higher promotional costs and larger inventories.
However, neither Chinese firm is seen as directly comparable to Vinamilk. “[China Modern and Huishan] are not as advanced as Vinamilk in terms of vertical integration. None of them are close,” the source said.
Shares in F&N are down 4.5% so far this year.
Vinamilk, Vietnam’s largest diary company, is vertically integrated and produces and distributes a variety of milk products including condensed milk, powdered milk, fresh milk, and soy milk, as well as ice cream and cheese. In addition to providing milk domestically, it exports powdered and condensed milk to the Middle East, Cambodia, the Philippines and Australia.
Vinamilk listed on the Ho Chi Minh Securities Trading Centre in 2003 and by 2006 accounted for nearly 43% of the market's turnover. This is the second deal in Vinamilk in less than a year, after a $70 million secondary placement in December 2013, and is Vietnam’s fifth-largest in 10 years, Dealogic data shows. Only Vietnam Insurance Corp and real estate companies Vincom and Vinagroup raised more money from equity capital markets in that time.
CLSA acted as sole bookrunner on both deals.
