Chinese Company in Talks to Buy Control of Tnuva

Tnuva is Israel’s biggest food maker, and deal could exceed NIS 6 billion.

China-based Bright Food Group, which has been a global acquisition binge over the past three years, is putting out feelers to buy Tnuva, Israel’s biggest food maker, in a deal that could exceed NIS 6 billion.

The Chinese company is in talks with Apax Partners, the British private equity fund that owns a 56% stake in Tnuva, the maker of such iconic products as Israel’s best-selling cottage cheese, through foreign investment banks, TheMarker has learned.

Apax and Mivtach Shamir bought control of Tnuva from the kibbutzim and moshavim in 2008 in a sale that valued the company at $989 million, equivalent to NIS 2.89 billion. Since then the partnership has taken out NIS 1.2 billion in dividends.

Nevertheless, the Chinese company faces long odds of acquiring Tnuva due to the Israeli company's ownership structure and joint control agreements between Apax and Mivtach Shamir Holdings. Apax and Mivtach Shamir together own 77% of Tnuva, with the rest held by kibbutzim and moshavim that could also demand a say in the price of the deal.

Mivtach Shamir holds a right of first refusal on the Tnuva shares it owns in partnership with Apax. The kibbutzim and moshavim, for their part, also hold sway by virtue of the fact that they have 23% shareholding and are Tnuva's main supplier of raw materials.

In its financial statements, Apax values Tnuva at NIS 8.5 billion while publicly traded Mivtach Shamir, controlled by Meir Shamir, places a value of NIS 5.5 billion on the company, but the company would likely sell for more than that.

Rivals Strauss Group and Osem Investments trade on the Tel Aviv Stock Exchange at an enterprise value/EBITDA multiple of 13.1 and 12.2, respectively. With Tnuva's earnings before interest, taxes, depreciation and amortization, or EBITDA, reaching NIS 740 million over the past 12 months, a sale of Tnuva would be unlikely to close at anything less than a company value of NIS 6.3 billion, even at a lower multiple of nine. Tnuva isn't publicly traded and therefore isn't subject to more stringent regulations over its operations.

Bright Food is a closely held company controlled by the Chinese government that specializes in food and beverage company holdings. With turnover for 2011 of $7 billion, Bright Food is China's second-largest food company and has four publicly traded subsidiaries, including Food & Bright Dairy.

Bright Food has 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 August 2011 for $530 million and in May last year bought 60% of the shares of British breakfast cereal maker Weetabix for 1.2 billion pounds. 

Tnuva cottage cheese on display in a minimarket fridge.
Tali Mayer