China's No. 2 Food Company to Discuss Buying Israel's No. 1. Tnuva

Executives of Bright Food Group arrive in Israel for talks with Apax, which controls most of Tnuva's shares.

The sale of Tnuva, Israel’s biggest food company, is growing imminent, with executives of China’s Bright Food Group due to arrive in Israel this week for talks with Apax Partners about buying its controlling stake.

Bright Food is in talks to buy all of the Tnuva shares controlled by Apax, a British private equity fund, in a deal that values the company at 8.8 billion shekels ($2.5 billion). Apax owns 73.1% of the holding company that owns more than three-quarters of Tnuva, whose products include cottage cheese and dairy products found in almost every Israeli refrigerator.

News of the Chinese delegation’s arrival caused shares of Mivtach Shamir, the Israeli holding company that owns the other 27% of the holding company, to rally on the Tel Aviv Stock Exchange. Mivtach chosed up 5.2% at 125 shekels.

One of the complications of the acquisition is possible controversy about a foreign food c ompany gaining control of Israel’s biggest food maker. As a result, the sides are seeking a structure that would prevent Bright Food - one of China’s biggest food groups and its third-largest dairy producer by revenues - from exercising direct control over Tnuva.

As part of the deal, therefore, Bright Food may sell a 12% block of shares in the holding company to Mivtach Shamir, which would increase the Israeli company’s stake in Tnuva to 30%. Bright Food may also agree to the appointing of a majority of Israeli directors on the board of Tnuva and naming Meir Shamir, the controlling shareholder of Mivtach Shamir, as chairman in order to moderate the public’s objections to the deal.

The visit to Israel comes as Bright Food executives pursue acquisitions in Europe, visiting London, Dublin, Brussels and Barcelona this week. Ge Junjie, vice president of the group, told the Financial Times Monday that Bright Food is aiming for overseas assets to account for 25% of its total in three years’ time, double what it is today.

At the same time, Apax Israel, which is headed by Zehavit Cohen, is advancing a plan to issue Tnuva shares for trading om the TASE. The plan for an initial public offering was approved by Tnuva’s board in mid-January, but Cohen prefers selling the company to Bright Food and wants to exhaust that option before settling on an IPO. Apax would prefer to sell off all its Tnuva shares, as the Bright Food sale would enable, while in an IPO it would take longer because the market couldn’t absorb all the stock at once. In addition, the kibbutzim and moshavim that own the other 23% of Tnuva, represented by the chairman of the Granot organization, Yitzhak Bader, objects to an IPO and could complicate or at the very least delay it.

The sale of control of Tnuva to Bright Food would yield Apax a $1.2 billion profit on its investment in Tnuva. Apax and Mivtach Shamir bought control of the company in 2008 at a company value of $989 million. Apart from selling the stake now at a $2.5 billion valuation, Tnuva has over the years distributed dividends totalling $650 million.

Bright Food, which is controlled by the Chinese government, had turnover of $7 billion in 2011. It is China’s second-largest food company and has four publicly traded subsidiaries, including Food & Bright Dairy.

Bright Food has in recent years been active in cross-border mergers and acquisitions. It bought 51% of New Zealand milk producer Synlait in July 2010 for $58 million. In September that year it held abortive talks to acquire Britain’s United Biscuits. Bright Food bought 75% of Australia’s Manassen Foods in 2011 for $530 million and in 2012 it bought 60% of the shares of British breakfast cereal maker Weetabix for 1.2 billion pounds. 

Nir Keidar