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Thai Union Frozen Products

A huge US tuna brand is up for grabs

Thai Union Frozen Products Plc (TUF)

What's new?

Lion Capital, a private equity firm, is looking to exit Bumble Bee Foods LLC (BBF), a leading North American branded shelf-stable (canned and pouched) seafood company, according to international news sources. Lion Capital apparently wants somewhere in the region of US$1.5bn. Bumble Bee Foods reported 2013 sales of US$1bn and EBITDA of US$130m.

On June 28, an internet-platformed fisheries news service called named TUF as a potential bidder. TUF declined comment. Note that this is a very early stage of proceedings—Lion Capital hasn't yet even appointed a financial advisor to open bidding for BBF.

We expect TUF to bid for BBF—it would be US market leader

The tuna market in the US comprises three major players—Starkist (30%), Bumble Bee Foods (28%) and Chicken of the Sea, or COSI, (20%). Note that COSI is a wholly-owned subsidiary of TUF. If TUF were to acquire Bumble Bee Foods, it would have 48% of the American shelf-stable tuna market. It would benefit from greater scale and its market dominance might even endow it with some pricing power. The question is whether such a big market share would breach US anti-trust law (that is a question for US regulators to answer).

Cash call would be required if TUF were to win bid

Given 2013 EBITDA of US$130m and an assumed sales price of US$1.5bn (~Bt50bn), the EV/EBITDA ratio would be 11.5x, which we regard as expensive. Note that the price TUF paid for MWB in 2010 (€680m) made for an EV/EBITDA ratio of 8.2x and the food acquisitions of other companies made between the years 1999-2010 were at a mean EV/EBITDA ratio of 9.9x.

If TUF were to buy BBF, it would be—by far—its biggest acquisition. We would expect the firm to need to raise at least Bt14bn in new capital in order to remain within the parameters of its debt/equity covenant of 2x (it would also need Bt36bn in new debt). That would make for a 72% debt-to-capital ratio. Note that TUF's debt-to-equity ratio was 1.12x at end-March 2014.

Speculation likely to push up share price in short-term

Our TRADING BUY rating stands, premised on a strong FY14 core earnings growth outlook, led by a tuna OEM margin recovery and sustained good shrimp margin. We think speculative playing on the Bumble Bee theme will probably boost the share price in the short-term.

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