Temasek plays musical chairs with assets

Daniel Inman

Temasek sells its controlling interest in Singapore Food Industries to a subsidiary of Singapore Airlines and realises $219 million.

Singapore Airport Terminal Services (SATS) yesterday announced that it has agreed to buy a 69.68% stake in Singapore Food Industries (SFI) for S$334.5 million ($219 million). The stake is being sold by Ambrosia Investment, a wholly owned subsidiary of Temasek Holdings.

SATS also counts as a Temasek company since it is 80%-owned by Singapore Airlines, which in turn is 54.4% owned by the Singapore investment firm. It is a service provider that offers ground handling and catering services at Singapore’s Changi Airport. Via a number of joint ventures, it provides food services at 40 airports across nine countries.

The target, SFI, is one of Singapore’s largest integrated food companies with activities in supplies, distribution, catering, manufacturing and processing. It also has significant operations in the UK.

The deal, which according to the buy-side adviser is the largest Singapore M&A transaction this quarter, seems to be a way for Temasek to realise value in one of its investee companies by moving the investment onto the balance sheet of another affiliate.

The deal comes only a week after Temasek abandoned plans for an immediate sale of its third power generating company, PowerSeraya, due to difficult market conditions. Earlier this year, Temasek successfully exited its other two Singapore gencos, selling Senoko Power to a consortium led by Japan’s Marubeni Corp for S$3.65 billion and Tuas Power to China Huaneng Group for S$4.24 billion. The mandate to sell all three gencos was awarded around three years ago to Credit Suisse and Morgan Stanley. Some specialists reckon Temasek is trying to ensure it has churned some of its investments to be able to take advantage of opportunities which are presenting themselves due to the market downturn.

SATS said the purchase of SFI is in accord with its ambitions to develop its business domestically, while at the same time expanding its overseas operations. The value that SFI will bring is an increase in the scale of operations. By increasing its consumer staples business, it will also increase the company’s exposure to a more general food market, away from the cyclical demand associated with providing catering to the aviation sector. SFI’s UK operations will create opportunities for SATS in terms of cross-selling to both airlines and non-aviation customers in a new region.

More specifically, SATS hopes to realise synergies in the areas of procurement, supply chain logistics, products development, production and sales.

“We are seeing a continuing trend of corporates with strong balance sheets being able to grow their core businesses by making strategic acquisitions at fair valuations which have been adjusted for the current economic climate,” says Keith Magnus, head of Merrill Lynch’s investment banking division in Singapore and Malaysia. “This transaction is a testament to SATS’ financial strength and the management’s vision and commitment in executing their strategy smartly in a way that enhances shareholder value.”

Merrill Lynch is advising SATS, while Credit Suisse advises the seller.

The agreed purchase price is S$0.93 per SFI share, which represents a 4% premium over the S$0.89 closing price on December 1. The price values SFI at 7.4 times its Ebitda of S$74 million for the most recent financial year ending December 2007. The transaction will be settled with cash.

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