AGRIBUSINESS group Greencore had made its first major investment outside Europe and has paid over £31 million for a 27 per cent stake in Imperial Holly Corporation, the second largest producer of refined sugar in the US.
Greencore can increase its stake in Imperial to 30 per cent in the next five years and above 35 per cent thereafter, but only with the agreement of the group's board. Two of Greencore's senior management, the chief executive, Mr David Dilger, and the finance director, Mr Kevin O'Sullivan, are to join the Imperial board.
Mr O'Sullivan was bullish about the investment and said that Greencore had invested in Imperial on very favourable terms. "We have been looking at the US for the past couple of years, we think there are changes in the market there which make it a good place to invest. We passed on one acquisition before we ended up forming this partnership with Imperial.
"There are a number of things we like about the US market," said Mr O'Sullivan. "For a start, it's a deficit market, with no overproduction, and beet production costs are much lower than they are in Ireland with high tonnages per acre.
"There has also been a lot of rationalisation, and the supply/ demand situation is much more in balance. The current trading outlook for Imperial is very good. We're happy with our timing and we see this as a low risk investment. It will be modestly earnings enhancing in year one."
On the price paid for the 27 per cent stake, Mr O'Sullivan said that Greencore is buying into Imperial at the equivalent of net asset value and at a price of about £100 per tonne of sugar refined. This compares with a replacement cost of £1,200-1,300 per tonne for Greencore's Irish plants. The $13.25 per share paid by Greencore values Imperial Holly at $187 million (£116 million).
Imperial's president, Mr James Kempner, said: "We feel certain that Imperial Holly will benefit greatly, not only from this additional equity capital but, as importantly, from the food industry knowledge and experience which our new shareholder brings."
Last year, Imperial Holly reported losses of $2.6 million on sales of $616.5 million compared to losses of $5.4 million on sales of $586.9 million the previous year. But after five dismal years' the prospects for the US sugar industry have improved significantly and in the first quarter of its financial year ending June 30th, Imperial Holly had profits of $4.1 million on sales of almost $180 million.
At the end of March 1996 Imperial had net debt of almost $90 million, and the $50.3 million proceeds from the Greencore investment will go towards reducing that debt, as well as funding some capital investment.
The group is the second biggest producer of sugar in the US, with a 16 per cent national market share. The sugar industry in the US is very regional, and Imperial Holly is the biggest player in the sugar industry in two states with large populations, California and Texas. The group refines beet sugar at eight locations in Montana, Wyoming, California and Texas, and also has a cane sugar refinery in Texas.
One third of sugar sales are to consumers under four different brands, with the balance sold to a large number of food manufacturers, none of which accounts for more than four per cent of total turnover.
Earlier this year, Imperial acquired the Spreckels sugar business in California and since then two of the five sugar factories in California have been taken out of production. However, Imperia has still to reach agreement wit Spreckels on the price to be paid for the California business, with Spreckels putting a value of $47 million on the business and Imperial calculating the purchase at $29.3 million.
Greencore will be the single biggest outside shareholder with 27 per cent, with family interests holding around 40 per cent after the Greencore investment. The balance is held by financial institutions, although Imperial shares are seldom traded.
The investment by Greencore was well received by analysts and should reassure those investors who were doubtful about Greencore's capacity to make acquisitions. Riada analyst Mr Joe Gill said that Greencore seems to be buying at a good price and at a time when the US sugar industry is set for a revival. Greencore is also buying into a company with cane sugar interests, a new area for the Irish concern.
