Analysis of URC’s acquisition of New Zealand’s no. 1 snack company

James Ryan Jonas

On Monday last week, Universal Robina Corp. (URC) announced it is acquiring a New Zealand-based company as part of URC’s bid to become an international snack food player.

URC said it is spending NZ $700 million, roughly equivalent to P26.4 billion, in exchange for a 100% stake in the holding company of Griffin’s Foods Ltd., the number one snack food company in New Zealand.

Immediately after the announcement, trading of URC’s stock was halted. It resumed trading after two days (on Wednesday, July 23).

Upon resumption of trading on Wednesday, the market reacted positively to the news, jacking up the price of URC’s stock by almost 5% to close at P165.50. It even reached an all-time high price of P170.00 on the same day.

And yet, on Thursday and Friday, the stock price declined to P161.00 — a 3% fall from its peak closing price on Wednesday.

What happened? Isn’t the acquisition supposed to be good for the company? Then why did the stock price fall and did not trade continuously upwards?

Did the market start digesting the acquisition news and saw the transaction as non-value adding in the short term?

To get insights regarding URC’s takeover of the New Zealand snack firm, we can refer to a Special Report published last week by PinoyInvestor, a premium stock trading resource in the Philippines.

The Special Report, entitled “4 Brokers analyze URC’s acquisition of Griffin’s Foods”, details the opinion of four Philippine stock brokerage companies with a recommendation on whether one should Buy, Sell or Hold the stock of URC based on the recent development.

Here are excerpts from the Special Report:

Analysis of stock broker 1: “The acquisition enables the transformation of Griffin’s international growth strategy by benefiting from URC’s distribution networks in the Philippines and other Asian countries. It also complements URC’s product portfolio as it leverages on distribution strength to sell premium range of products in local and international markets.”

Analysis of stock broker 2: “We think that the consolidation is NOT VALUE-ACCRETIVE (that is, not gradually adding value to Earnings Per Share) in the near term. Assuming an acquisition cost of 5%, the consolidated financial performance of the two companies would erode URC’s 2014 Net Income by PHP 105.3 million.”

The report also identifies each of the four stockbroker’s Target Price for URC and opinion whether one should Buy, Sell or Hold the stock at current prices. Click here if you want to access the premium Special Report.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.