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Another major credit agency has warned about the massive debt burden that
Burns Philp will have to carry if the food group succeeds with its $2.2 billion
bid for Goodman Fielder and follows that up with any more big acquisitions.
Standard & Poor's lowered its corporate credit rating on Burns Philp's debt
and warned that it might still have to make more downgrades. ``The rating
actions reflect Burns Philp's appetite for large acquisitions...and the
likelihood that, if the bid is successful, it will pursue other large,
debt-funded acquisitions," Standard & Poor's analyst Jeanette Ward said in a
statement.
``If Burns Philp successfully acquires Goodman, the rating could be lowered
by one notch. This would reflect the substantial increase in Burns Philp's debt
load and the significant integration risks associated with an acquisition of
this size," Ms Ward wrote.
Burns Philp has previously disclosed that the transaction would catapult its
total debt to $2.7 billion.
Standard & Poor's action follows a similar warning by fellow ratings agency
Moody's on Thursday.
Equities analysts generally said the downgrades were a typical response by
ratings agencies and were not likely to affect the takeover.
Shares in Burns Philp were 1c higher at 49.5c yesterday. Goodman Fielder was
unchanged at $1.75, in arrears of the $1.85-a-share bid.
The stock has barely budged this week despite rumours that Goodman Fielder's
adviser, Macquarie Bank, is near to clinching plans to break up the company in a
deal worth $2 a share.
The market, however, still favours the Burns Philp takeover. Yesterday, the
bidder confirmed it had raised its entitlement to Goodman Fielder to 15.9 per
cent from 14.8 per cent as shareholders committed to the offer.
Meanwhile, Goodman Fielder completed its 2 1/2-year program of asset sales
with the disposal of its remaining ingredients business to Tessenderlo Chemie
SA/NV for $115 million.
The deal, completed for a price above book value, raises total proceeds from
the divestments to $800 million.
Chief executive Tom Park said the company now sourced 65 per cent of total
revenue from higher-margin branded food such as Uncle Tobys cereals, Meadow Lea
margarine and Buttercup bread. ``Goodman Fielder has rapidly changed from a
diversified, partly commoditised food and ingredients business to one focused
primarily on a high-value, branded strategy," he said.
The next stage in the takeover battle is likely to come early this week when
the Takeovers Panel makes a ruling on Burns Philp's demand that Goodman Fielder
disclose more details on its finances. Also, Burns Philp will issue its
first-half results on Monday.
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