Del Monte Pacific

[white collar]

Vested in them recently so my take could be bias.

The management is not really borrowing 10 times to bet, Del Monte Food had $900mil of debts to start with and they were still able to churn out profit before the acquisition, DMPL "only" took up $700+mil of debts. $150mil is covered using their rights issues, $350mil was covered by the mid term bridge loan (2 years i think), and the remaining by their cash and existing loan facility.

In terms of results, they seemed to be able to cover for the interest expenses (even before the rights issue) if you look beyond the one off expenses such as their step up inventory (which causes cogs to be higher, reducing gross profit).

Cash flow is still pretty positive, and like what you mentioned, I feel the current low price is worthy of a bet. The fear i have is that they are not able to maintain or grow the current level of ops income..

as of the most current FS,
http://infopub.sgx.com/FileOpen/DMPL_3Q_...eID=338269
even after the dilution and rights issue
Total Liabilities 2,462,307
Total Equity 219,849

basically the management is borrowing 10 time its equity to bet, I am not sure how capable the management is, how it is going to turn the business around, but the takeover that cause these problems, the failure of preference share doesn't, speak very well of the financial capabilities of the management. The bet doesnt seem to justify the borrowing, it is losing money, not a good sign, it is cancelling its preference share, i guess no one will subscript to it, or the cost will be so high, that the company cannot pay, so the market is punishing its price, it is at 12 years low, at current price of 0.31 will it be a good bet? I will not bet my money, they might not make enough to pay the interest, just like the most recent quarter. but it is definitely a good business, but somehow turn into a financial bet, but at lower price, I am willing to bet. Better let time paint a clearer picture of what this company is going to be

Agree with zxiank. Should look beyond the EBITDA numbers and make an adjustment for the non-recurring acquisition expenses. The company is indeed highly leveraged but post-rights issue, the net gearing will go down to 4.7x from 8.7x. As for the preference shares, the delay/ postponement may not be a bad move as the group wants to pay lower interest. The rate on the extended bridge loan (for up to 2 years) is quite low at LIBOR + 3.5%. It is much lower than doing a prefs. This is a defensive stock with very strong brand name worldwide. The little snake just needs some time to digest the giant hippopotamus it just swallowed.

[DCF]

Vested in them recently so my take could be bias.

The management is not really borrowing 10 times to bet, Del Monte Food had $900mil of debts to start with and they were still able to churn out profit before the acquisition, DMPL "only" took up $700+mil of debts. $150mil is covered using their rights issues, $350mil was covered by the mid term bridge loan (2 years i think), and the remaining by their cash and existing loan facility.

In terms of results, they seemed to be able to cover for the interest expenses (even before the rights issue) if you look beyond the one off expenses such as their step up inventory (which causes cogs to be higher, reducing gross profit).

Cash flow is still pretty positive, and like what you mentioned, I feel the current low price is worthy of a bet. The fear i have is that they are not able to maintain or grow the current level of ops income..

as of the most current FS,
http://infopub.sgx.com/FileOpen/DMPL_3Q_...eID=338269
even after the dilution and rights issue
Total Liabilities 2,462,307
Total Equity 219,849

basically the management is borrowing 10 time its equity to bet, I am not sure how capable the management is, how it is going to turn the business around, but the takeover that cause these problems, the failure of preference share doesn't, speak very well of the financial capabilities of the management. The bet doesnt seem to justify the borrowing, it is losing money, not a good sign, it is cancelling its preference share, i guess no one will subscript to it, or the cost will be so high, that the company cannot pay, so the market is punishing its price, it is at 12 years low, at current price of 0.31 will it be a good bet? I will not bet my money, they might not make enough to pay the interest, just like the most recent quarter. but it is definitely a good business, but somehow turn into a financial bet, but at lower price, I am willing to bet. Better let time paint a clearer picture of what this company is going to be

Agree with zxiank. Should look beyond the EBITDA numbers and make an adjustment for the non-recurring acquisition expenses. The company is indeed highly leveraged but post-rights issue, the net gearing will go down to 4.7x from 8.7x. As for the preference shares, the delay/ postponement may not be a bad move as the group wants to pay lower interest. The rate on the extended bridge loan (for up to 2 years) is quite low at LIBOR + 3.5%. It is much lower than doing a prefs. This is a defensive stock with very strong brand name worldwide. The little snake just needs some time to digest the giant hippopotamus it just swallowed.

Agree. This is also the situation that gives us the opportunity to buy such branded franchise at a depressed price.

[sgpunter]

There can be a lot of reasons why Lee Pineapple did not subscribe for their rights. Subscribing for their rights will require an additional $17.1m and they may not have budgeted for it in their capex or they may have other uses or not enough money or what not. Who knows.

Among the reports I have read, I agree with the CIMB one dated 26 June 2014 the link which I have attached. No comments on target price. I never believe in target prices.

I think every Tom, Dick and Harry can tell that 2015 will be a year of restructuring and losses for DMPL. The question is can DMPL pull off the restructuring and bring DMPL back to profitability in 2016. Personally, I don't believe the Campos family will let in sink. I mean they pumped in another 140m for the rights. Will this billionaire be so foolish...? I personally don't think so.

https://d28c5979-a-62cb3a1a-s-sites.goog...edirects=0

[white collar]

The US unit recently bought a SF-based vegetable business, Sager Creek, for 3X EBITDA. What a steal.

[zxiank]

haha seemed like many buddies have their eyes on Del Monte now. For short term, given that Lee Pineapple didn't subscribe to the rights, and assuming no single shareholder took over those rights, there will be about 50mil new shares added to the free float. Plenty of shares around to play with the price..

On a lighthearted note, DMPL's market cap is about S$600mil now, less than it was before the acquisition. The US$1.6bil DMFI became a negative asset.. shows us how wonderful Mr Market is in pricing haha..

[testwrite]

haha seemed like many buddies have their eyes on Del Monte now. For short term, given that Lee Pineapple didn't subscribe to the rights, and assuming no single shareholder took over those rights, there will be about 50mil new shares added to the free float. Plenty of shares around to play with the price..

On a lighthearted note, DMPL's market cap is about S$600mil now, less than it was before the acquisition. The US$1.6bil DMFI became a negative asset.. shows us how wonderful Mr Market is in pricing haha..

presume DMPL, and DMF value does not increase or decrease after the combination, the enterprise value=debt+market value should not change also, but now the debt increase, hence market value should drop, on a lighthearted note, we are now buying at 12 year low

[testwrite]

Vested in them recently so my take could be bias.

The management is not really borrowing 10 times to bet, Del Monte Food had $900mil of debts to start with and they were still able to churn out profit before the acquisition, DMPL "only" took up $700+mil of debts. $150mil is covered using their rights issues, $350mil was covered by the mid term bridge loan (2 years i think), and the remaining by their cash and existing loan facility.

In terms of results, they seemed to be able to cover for the interest expenses (even before the rights issue) if you look beyond the one off expenses such as their step up inventory (which causes cogs to be higher, reducing gross profit).

Cash flow is still pretty positive, and like what you mentioned, I feel the current low price is worthy of a bet. The fear i have is that they are not able to maintain or grow the current level of ops income..

as of the most current FS,
http://infopub.sgx.com/FileOpen/DMPL_3Q_...eID=338269
even after the dilution and rights issue
Total Liabilities 2,462,307
Total Equity 219,849

basically the management is borrowing 10 time its equity to bet, I am not sure how capable the management is, how it is going to turn the business around, but the takeover that cause these problems, the failure of preference share doesn't, speak very well of the financial capabilities of the management. The bet doesnt seem to justify the borrowing, it is losing money, not a good sign, it is cancelling its preference share, i guess no one will subscript to it, or the cost will be so high, that the company cannot pay, so the market is punishing its price, it is at 12 years low, at current price of 0.31 will it be a good bet? I will not bet my money, they might not make enough to pay the interest, just like the most recent quarter. but it is definitely a good business, but somehow turn into a financial bet, but at lower price, I am willing to bet. Better let time paint a clearer picture of what this company is going to be

Agree with zxiank. Should look beyond the EBITDA numbers and make an adjustment for the non-recurring acquisition expenses. The company is indeed highly leveraged but post-rights issue, the net gearing will go down to 4.7x from 8.7x. As for the preference shares, the delay/ postponement may not be a bad move as the group wants to pay lower interest. The rate on the extended bridge loan (for up to 2 years) is quite low at LIBOR + 3.5%. It is much lower than doing a prefs. This is a defensive stock with very strong brand name worldwide. The little snake just needs some time to digest the giant hippopotamus it just swallowed.

not sure when the interest rate will rise, but if fed increase the interest rate, the little snake will have to work harder to digest the giant hippopotamus

[specuvestor]

d.o.g. has a great write up on DMPL history. That gives certain discomfort on whether this LBO is commercially driven. And might also explain Lee's inaction

[zxiank]

Are you referring to the first post of this thread? You feel that DMPL bought DMFI partially for historical reason to "unite" the 2 companies? A search on the net worth of the Campos family gave us a $800mil figure.. it is definitely not a small change for them to do it for non commercial value. They are also a buyer of del monte previously, not really the original owner after the breakup if I'm not wrong.

d.o.g. has a great write up on DMPL history. That gives certain discomfort on whether this LBO is commercially driven. And might also explain Lee's inaction

[sgpunter]

Looking at the profile of DMPL MD/CEO, agree with zxiank, I certainly don't think this guy is a sucker who does things for altruistic reasons...my guess is he saw some synergies between the businesses...I certainly see no bit of possibility that this ambitious (and risky) move is not commercially driven.

Mr Joselito D Campos, Jr

Managing Director and Chief Executive Officer

Mr Joselito D Campos, Jr is Chairman and CEO of the NutriAsia Group of Companies, a major food conglomerate in the Philippines. He is also Chairman of Fort Bonifacio Development Corp and Chairman of Ayala-Greenfield Development Corp, two major Philippines property developers. He is a Director of San Miguel Corporation, one of the largest and oldest business conglomerates in the Philippines. Mr Campos is the Vice Chairman of Del Monte Foods, Inc, DMPL’s US subsidiary. He is also a Director of FieldFresh Foods Private Ltd, a joint venture of the Company with the Bharti Group of India. He was formerly Chairman and CEO of United Laboratories, Inc and its regional subsidiaries and affiliates. Unilab is the Philippines’ largest pharmaceutical company with substantial operations in the Asian region. Mr Campos is the Honorary Consul in the Philippines for the Republic of Seychelles. He is also Chairman of the Metropolitan Museum of Manila, Bonifacio Arts Foundation Inc, The Mind Museum and the Del Monte Foundation. He is a Trustee and Global Council Member of the Asia Society in the Philippines; a Trustee of the Philippines-China Business Council, the Philippines Center for Entrepreneurship and the World Wildlife Fund-Philippines; and a Director of the Philippines Eagle Society. Mr Campos holds an MBA from Cornell University.