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Moody's Investors Service has raised concerns about Burns Philp's $2.2
billion takeover of Goodman Fielder downgrading Burns Philp's credit rating and
flagging the possibility of more negative revisions as the bid plays itself
out.
Meanwhile, rumours were again circulating yesterday on dealing desks that
Goodman Fielder's adviser, Macquarie Bank, was near to clinching a rival deal
valuing the food group at around $2 a share.
There was speculation last week that Macquarie had found ready buyers for the
plum parts of the business, such as Uncle Tobys, but was struggling to sell the
less palatable baking operations and the fats and oils unit.
Goodman Fielder shares were unmoved by the market talk, closing unchanged at
$1.75, 5.4 per cent below Burns Philp's $1.85-a-share offer. Burns Philp fell 1c
to 48.5c.
Moody's downgraded Burns Philp's existing debt a notch and adopted a
``negative outlook" on the prospect for further ratings revisions, noting that
the takeover would increase leverage to ``very high" levels. Burns Philp's debt
would balloon to $2.7 billion if the bid succeeds.
The ratings agency raised concerns about Burns Philp integrating Goodman
Fielder a task it said could prove ``challenging" given the large size of
Goodman Fielder and its distinct businesses.
Moody's was also cautious about the possibility of more unwelcome surprises
turning up in Goodman Fielder's accounts.
However the agency noted management's success in restructuring Burns Philp in
the past five years, selling non-core assets and improving profits in yeast and
spices.
Ratings agency Standard and Poor's is expected to deliver its assessment of
Burns Philp in the next few days.
Equities analysts were unperturbed by Moody's downgrade.
``Burns Philp is like buying a house in the eastern suburbs: it's highly
geared," said UBS Warburg analyst David Roberton.
Another analyst said it was a typical rating agency response.
``The view is that every additional dollar on the balance sheet adds risk,"
the analyst said. ``It was an entirely expected response."
The hostile takeover is now before the Takeovers Panel.
Burns Philp wants Goodman Fielder to give more financial details. The panel
is expected to make a ruling today or early next week.
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