Singapore oils trader Wilmar International and Hong Kong investment company First Pacific will have another few months to assess the impact of $1 a loaf bread and market-share losses in margarine before proceeding with their $1.3 billion takeover of breads and spreads maker Goodman Fielder.
Wilmar and First Pacific's takeover of Goodman Fielder, through a scheme of arrangement, has been postponed once again because of regulatory delays in China - increasing the risk that the deal may not proceed.
Goodman said on Monday a shareholder meeting to approve the scheme of arrangement was now expected to be held in the first quarter of calendar 2015 and the scheme end date had been postponed from December 31 to March 31. The meeting was originally slated for November 3 and was postponed in August until late November.
"It's an extra three months and that has to add some risk to the scheme not going through," said CIMB analyst Daniel Broeren.
Analysts and fund managers said the delay would give Wilmar and First Pacific more time to assess the impact on earnings from the introduction in July of $1 a loaf house brand bread in New Zealand, market share losses in table spreads and cost savings in its Australian baking business. "This may be cover to see how $1 bread in New Zealand works out," said one fund manager, who declined to be named.
Analysts also questioned why it was taking so long for Wilmar and First Pacific to secure approvals from the Ministry of Commerce in China.
"I would have thought it would be a box-ticking exercise for them," Mr Broeren said.
Under a material adverse change clause in the scheme agreement, Wilmar and First Pacific have the right to walk away from the offer if Goodman's recurring earnings before interest and tax fall $30 million, or if the value of net assets falls by $100 million.
The introduction of $1 a loaf bread in New Zealand and market share losses in margarine could have a significant impact on earnings this year.
"If the impact of $1 bread in Australia was bad, it may be far worse in New Zealand," Citigroup analyst Gino Rossi said in a report last month. "Goodman Fielder will benefit from increased private label volumes, but the impact on branded volumes is likely to more than offset this gain."
Mr Rossi said New Zealand had higher private label penetration in bread and private label prices were higher to begin with, so a price drop to $1 would be more meaningful than it was in Australia. However, it is understood that Goodman is not funding the bread price cut in New Zealand.
Analysts said $1 a loaf bread alone may not be enough to trigger the material adverse change clause. But if costs continued to mount in Australian baking, and Goodman loses more share in spreads, earnings could go backwards.
"It's a low probability they will miss those hurdles, but you would have to think the risk is a little higher than it was beforehand," Mr Broeren said.
Goodman shares are trading at 63¢, a discount to Wilmar and First Pacific's 67.5¢ a share offer, reflecting the time value of money and uncertainty that the deal will proceed at the current price.
Wilmar and First Pacific originally offered 70¢ a share but reduced the offer price in July after conducting due diligence.
The joint bidders are also awaiting approval from the Foreign Investment Review Board and the Australian Competition and Consumer Commission.
