Mitsubishi offers $1.4 bln for Norway’s Cermaq

Reuters – Mitsubishi Corp has offered $1.4 billion for Norwegian fish farmer Cermaq, in a cash bid that would secure a larger share of the salmon market for the Japanese group as it targets consumers’ increasingly health-conscious tastes.

Monday’s bid – at 96 crowns ($15.12) per share, a 14 percent premium to Friday’s close – has been agreed by Cermaq’s board and is supported by Norway’s government, the top shareholder with 59 percent.

But the government also said it reserved the right to pick another bidder, fuelling investors’ hopes on Monday of a counter offer and helping the stock climb over 98 crowns in morning trade. World number one Marine Harvest made an unsuccessful hostile bid for Cermaq last year.

At 0916 GMT the stock was trading at 97.25 crowns, up 16 percent on the day.

“The offer price seems fair to us, valuing Cermaq at enterprise value to kilograms (of fish) at 67 crowns whereas we typically see such deals done at around 60 crowns,” ABN Amro analysts said in a note to clients.

“We could imagine that Mitsubishi will use Cermaq as a stepping stone for further consolidation of the still relatively fragmented salmon farming industry in Chile.”

ABN said Cermaq generates 50 to 60 percent of its revenues in Chile, making it a top-3 player with around 12 percent market share. Mitsubishi, which has sought to diversify away from its natural resources focus, already owns a Chilean salmon farm.

Mitsubishi has said it aims to double its earnings from non-resource assets by 2020. Securing Cermaq would make it the world’s second-biggest salmon farmer, it said on Monday.

COUNTER MOVE?

Fish farming stocks have been in high demand this year as global demand for salmon, perceived as a healthier protein alternative to meat, will outpace production at least through 2016, keeping prices under upward pressure.

Global production growth is weak as producers in Chile have struggled with disease and a lack of sufficient capital. That has left Norwegian producers, who account for more than half of the world’s farmed salmon trade, at an advantage.

Cermaq, which has assets in Norway, Chile and Canada, is considered by analysts to be especially attractive, as it has a solid position in both established and fast growing new markets.

The stock now trades at 9.8 times its expected 2015 earnings, above a valuation of around 8.4 for its peers and just below Marine Harvest’s 10, analysts said.

“This looks like a good deal for Cermaq’s shareholders,” Nordea Markets analyst Kolbjoern Giskeoedegaard said. “Marine Harvest could make a counter-move.”

Marine Harvest, controlled by shipping tycoon John Fredriksen, declined to comment. It has been expanding since its failed bid and this month announced it would buy assets in Chile for $120 million.

Cermaq shares have climbed 64 percent since the start of the year, outperforming a 12 percent rise in the broader market and gaining strength since June when the centre-right government, in office for less than a year, said it would be willing to sell Cermaq.

The government’s centre-left predecessor had increased its stake in Cermaq to 59 percent from 43 percent, preventing a takeover by Marine Harvest, in part to the uneasy relationship between Oslo-born Fredriksen, now a Cypriot national, and Labour-led government.

Cermaq said it held preliminary talks with several investors over the past six months before settling on Mitsubishi, which made a preliminary, undisclosed offer in August.

The bid comes as the salmon market works through short-term turbulence, due in part to a Russian import ban and Chinese restrictions. Cermaq on Monday cut its 2014 output guidance.

Analysts say they expect fish prices to rebound. (Additional reporting by James Topham in Tokyo; Editing by Terje Solsvik, Louise Heavens and Clara Ferreira Marques)