US/Europe Event-Driven Analyst

John DeMasi

Event-Driven

<ul>
<li>Cargill/Continental Grain announced joint acquisition of Sanderson Farms on 9th August 2021 for $203/share cash.</li>
<li>Poultry Market in the USA is not concentrated; deal presents little traditional competition risk.</li>
<li>Recent accusations of price-fixing in poultry sector present political risk, but SAFM is cheap even if deal were to get blocked.</li>
</ul>


Cargill/Continental Grain announced joint acquisition of Sanderson Farms on 9th August 2021 for $203/share cash.
Poultry Market in the USA is not concentrated; deal presents little traditional competition risk.
Recent accusations of price-fixing in poultry sector present political risk, but SAFM is cheap even if deal were to get blocked.


Sanderson Farms (SAFM US) – Pending Takeover Offers Favourable Risk/Reward

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.In this Insight:<ol><li><a href='/entities/tata-motors-ltd' target='_blank' rel='noopener'>Tata Motors Ltd</a></li><li><a href='/entities/anton-oilfield-services-gp' target='_blank' rel='noopener'>Anton Oilfield</a></li><li><a href='/entities/china-south-city-holdings' target='_blank' rel='noopener'>China South City</a></li><li><a href='/entities/panda-green-energy-group-ltd' target='_blank' rel='noopener'>Panda Green</a></li><li><a href='/entities/gcl-new-energy-holdings-ltd' target='_blank' rel='noopener'>Gcl New Energy Holdings</a></li></ol>and more...

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.In this Insight:Tata Motors LtdAnton OilfieldChina South CityPanda GreenGcl New Energy Holdingsand more...

Lucror Analytics' ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable). We assess JBS' ESG as "Adequate", given the "Adequate" Environmental and Governance scores, while the Social pillar is "Strong". Controversies are "Immaterial" and Disclosure is "Strong". For various metrics (e.g. fuel and electricity intensity), we have used JBS US’ data as a proxy to track the group's overall performance.

Lucror Analytics' ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).  We assess JBS' ESG as "Adequate", given the "Adequate" Environmental and Governance scores, while the Social pillar is "Strong". Controversies are "Immaterial" and Disclosure is "Strong". For various metrics (e.g. fuel and electricity intensity), we have used JBS US’ data as a proxy to track the group's overall performance.  

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
Back on the 26 February this year, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02347852-3A562617?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02336871-3A560489?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">market update</a> earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020. Concurrent with its 1H21 results, Huon said the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders. In a follow-up announcement on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02387935-3A569418?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">25 June</a>, Huon said that strategic review remained ongoing. 
</div>
<div>
The most likely outcome of the review was a take-private transaction, however, an auction process dragged on, with a number of bidders pulling out on account of pricing. 
On the 6 August, Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02404691-3A572314?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm Offer, by way of a Scheme, with  Brazil's <a href="https://www.smartkarma.com/entities/jbs-sa" target="_blank" data-smartkarma-citation="entities:24455:1" rel="noopener">JBS SA (JBSS3 BZ)</a>. Huon shareholders would receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share - if paid - will be netted.
The cash price was a 61% premium to the last close, before the strategic review was announced on the 26 February. The Bender family with 53% of shares out intend to vote all of their shares in support of the Scheme, in the absence of a superior offer. The Offer also required approval from FIRB.
Apart from FIRB signing off - no small ask given JBS had fallen foul of US regulators recently - this looked like a done deal, with possible completion in November. 
</div>
<div>
But Andrew Forrest's family fund Tattarang had other plans and promptly upped its stake to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02405676-3A572494?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">18.51%</a> on the 10 August from 7.33% at the time of the SID announcement. That current stake all but blocks a Scheme. 
Not to be outdone,  JBS announced a parallel takeover bid on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02406953-3A572757?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">13 August</a>. This second Offer is conditional on 50.1% acceptances from shareholders.  With the Bender's stake, that Offer is effectively done - barring FIRB rejection. The Bender family also entered in a pre-bid acceptance agreement for 19.9% of shares out. 
It was unclear at the time whether Forrest was trying to block JBS in Huon or just looking for a better price.
In various media advertisements last Friday, Forrest <a href="https://www.harvestroad.com/its-time-to-commit-a-public-challenge-to-jbs-from-dr-andrew-forrest-ao/" target="_blank" rel="noopener">called on</a> JBS to commit to the same principles as Tattarang’s agri-food business, Harvest Road, and its beef processing company, Harvey Beef.
<div>
<blockquote>
For a small expense and through good management at Harvey Beef, we have established a clear No Pain No Fear framework in the critical stages of cattle processing as part of our ambition to exceed animal welfare standards and create a path for others to follow.
This means our customers don’t have to compromise their values when they choose to buy our products.
Animals provide humans with a valuable source of protein, the least we can do is respect this by ensuring they are treated with the utmost care.
As the world’s biggest protein producer, JBS can rise to this same standard.
</blockquote>
Not altogether surprisingly, JBS took umbrage with this challenge, saying it already adheres to high standards in its animal handling. As did Huon. 
Huon <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02409974-3A573426?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> this morning...   that it has been...
<blockquote>
uncompromising in its commitment to the highest standards of animal husbandry, biosecurity, environmental management, and sustainable farming practices. Huon remains the only seafood producer in Australia to achieve RSPCA Approved Farming certification and firmly believes its sustainable salmon farming practices can be benchmarked against the best standards in the world.
</blockquote>
</div>
Huon also added Tattarang had earlier expressed interest in Huon and submitted a non-binding and conditional indicative offer. Tattarang was invited to participate further in the strategic review process but declined to do so. Tattarang’s non-binding and conditional indicative offer was at a material discount to JBS’s $3.85 offer.
Oddly, Huon is trading almost at terms. Given the non-negligible risk FIRB blocks the deal, I would avoid shares here.
More below the fold. 

</div>


Back on the 26 February this year, Huon announced a loss of A$95.3mn for the 1H21, including a non-impairment charge of A$113.9mn. In a market update earlier that month, Huon said salmon prices had declined ~40% relative to the first six months of 2020. Concurrent with its 1H21 results, Huon said the board has initiated a strategic review to assess the potential for corporate-level transactions for the benefit of shareholders. In a follow-up announcement on the 25 June, Huon said that strategic review remained ongoing. 


The most likely outcome of the review was a take-private transaction, however, an auction process dragged on, with a number of bidders pulling out on account of pricing. 
On the 6 August, Huon announced a firm Offer, by way of a Scheme, with  Brazil's JBS SA (JBSS3 BZ). Huon shareholders would receive A$3.85/share in cash. A fully-franked dividend of $0.0125/share - if paid - will be netted.
The cash price was a 61% premium to the last close, before the strategic review was announced on the 26 February. The Bender family with 53% of shares out intend to vote all of their shares in support of the Scheme, in the absence of a superior offer. The Offer also required approval from FIRB.
Apart from FIRB signing off - no small ask given JBS had fallen foul of US regulators recently - this looked like a done deal, with possible completion in November. 


But Andrew Forrest's family fund Tattarang had other plans and promptly upped its stake to 18.51% on the 10 August from 7.33% at the time of the SID announcement. That current stake all but blocks a Scheme. 
Not to be outdone,  JBS announced a parallel takeover bid on the 13 August. This second Offer is conditional on 50.1% acceptances from shareholders.  With the Bender's stake, that Offer is effectively done - barring FIRB rejection. The Bender family also entered in a pre-bid acceptance agreement for 19.9% of shares out. 
It was unclear at the time whether Forrest was trying to block JBS in Huon or just looking for a better price.
In various media advertisements last Friday, Forrest called on JBS to commit to the same principles as Tattarang’s agri-food business, Harvest Road, and its beef processing company, Harvey Beef.


For a small expense and through good management at Harvey Beef, we have established a clear No Pain No Fear framework in the critical stages of cattle processing as part of our ambition to exceed animal welfare standards and create a path for others to follow.
This means our customers don’t have to compromise their values when they choose to buy our products.
Animals provide humans with a valuable source of protein, the least we can do is respect this by ensuring they are treated with the utmost care.
As the world’s biggest protein producer, JBS can rise to this same standard.

Not altogether surprisingly, JBS took umbrage with this challenge, saying it already adheres to high standards in its animal handling. As did Huon. 
Huon said this morning...   that it has been...

uncompromising in its commitment to the highest standards of animal husbandry, biosecurity, environmental management, and sustainable farming practices. Huon remains the only seafood producer in Australia to achieve RSPCA Approved Farming certification and firmly believes its sustainable salmon farming practices can be benchmarked against the best standards in the world.


Huon also added Tattarang had earlier expressed interest in Huon and submitted a non-binding and conditional indicative offer. Tattarang was invited to participate further in the strategic review process but declined to do so. Tattarang’s non-binding and conditional indicative offer was at a material discount to JBS’s $3.85 offer.
Oddly, Huon is trading almost at terms. Given the non-negligible risk FIRB blocks the deal, I would avoid shares here.
More below the fold. 



United States

JBS S.A. operates as a processor of a range of meats. The Company processes meats, such as beef, pork, lamb and chicken, as well as the hides. JBS exports its products throughout the world.

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JBS S/A (JBSS3 BZ)

Sanderson Farms (SAFM US) – Pending Takeover Offers Favourable Risk/Reward

Chicken on Sale! Sanderson Farms trades at much lower multiples than peers and has a pending takeover which could close within months. Even if the...

John DeMasi

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JBS - ESG Report - Lucror Analytics

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Huon Ag (Huo AU): Twiggy Went To Market

Trading at a gross/annualised return of 0.2%/1.2%. I doubt there is a bump here. I'd be inclined to avoid this transaction. I think FIRB approval...

David Blennerhassett

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