# MTT - Metcash Trading



## still_in_school (5 November 2004)

Hi Guys,

This is stock, i jumped on yesterday and bought a large position, though in the trades yesterday, some large volume of units per a trader were going through...

*Small Profile Below*

Metcash Trading (MTT) is a leading marketing and distribution company operating in the food and other fast moving consumer goods categories. MTT is 74% owned by South African grocery wholesaler, Metro Cash and Carry. MTT operates via three business units: IGA Distribution (retail), Campbells Cash & Carry (wholesale) and Australian Liquor Marketers (ALM; liquor wholesale).

***

the rumour is there is going to be a take over bid next week, (sorry cant disclose my source) though if the rumor is true, and trusting my source (and with quite a large position holding now) which should see a battle between the large retailers, to have some ownership into this company... could end up being like ALH...

Cheers,
sis


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## wayneL (5 November 2004)

*Re: MTT - Rumor of Take Over*

This is another of my bottom drawer stocks.

First PHY, now MTT! At least someone else likes Them LOL.


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## still_in_school (15 November 2004)

*Re: MTT - Rumor of Take Over*

Quick Update...

arent able to provide T/A yet, though MTT is breaking out and sellers are looking slim...

Cheers,
sis


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## wayneL (6 December 2004)

*Re: MTT - Rumor of Take Over*

The genie is out of the bottle  :

Stock:                  MTT     
Current Valuation:      $3.24   DCF 
Recommendation:         Outperform/Neutral (changed from Neutral/Neutral) 
Volatility Index:       Medium 

Stock:                  FOA     
Current Valuation:      $22.37  DCF 
Recommendation:         Outperform/Neutral (changed from Under/Neutral) 
Volatility Index:       Medium 

Event:                          

Metcash (MTT) has announced two proposed transactions: 
        1. Intention to make a hostile, off market takeover offer for the entire share capital of Foodland (FOA). 
        2. A capital reorganisation, to buy out the South African company that owns 60% of issued shares in MTT. 

1. Foodland offer 

Basically, the MTT offer is structured such that MTT acquires FOA's Australian businesses (WA Wholesale and Action supermarkets), and FOA shareholders retain ownership of FOA's NZ business. 
For the Australian business, MTT will offer FOA shareholders a choice of (1) $7.18 cash per FOA share; or (2) 2.44 MTT Australian preference shares (worth ~$7.17 at Friday's close). 
FOA shareholders will also receive 1 MTT NZ preference share for every FOA share. The MTT NZ Preference Shares will eventually convert into ordinary shares in a new company called Foodland New Zealand (FNZ). FNZ will be separately listed on the ASX. 
The transaction values FOA's Australian business at $846m. 

2. Capital reorganisation 

The proposed capital reorganisation will result in MTT effectively buying out its 60% South African parent company at $2.92 per share. The transaction is not conditional on the outcome of the proposed FOA takeover offer. 
The proposal is structured such that a new company (Newco) will purchase the entire share capital of Metoz Holdings Ltd, which owns 60% of the issued shares in MTT. Newco will acquire each MTT share for $2.80 cash plus the assumption of $0.12 of debt. 
MTT shareholders will then receive one Newco share for each MTT share held. 
On completion, Newco will then be renamed Metcash. The capital reorganisation will be implemented by a Metoz Scheme of Arrangement in South Africa and a MTT Scheme of Arrangement in Australia. The two largest shareholders of MEtoz, who control 47% of the stock, have agreed to vote in favour of the scheme, in the absence of a superior offer. 

3. Fundraising 

MTT proposes to fund the combined transactions as such: 
        Sources:        A$m 
        Placement       250 
        Rights Issue    560 
        Hybrid          390 
        Debt            860 
        Total           2060 

        Uses: 
        Foodland offer  846 
        Capital reorg.  1125 
        Transn Costs    89 
        Total           2060 

The institutional equity placement closes at 4pm today, raising 90m shares at a minimum price of $2.60 per share (i.e.. minimum value of $234m). The new shares will not participate in the 1H05 interim 5.5c dividend. 
We are awaiting further details of the proposed rights issue etc and any associated dilution etc. 


4. Stock Implications: 

Metcash: 

Initial impression is that, if successful, this appears to be a highly accretive, company transforming series of transactions for Metcash. 
MTT will become a much stronger player in the Australian grocery market channel. 
The acquisition of Foodland's Australian business would result in increased scale (market share from lift ~14% to ~18%). Action stores would be sold off to IGA franchisees. 
Also, Metcash would benefit from greater synergies from better buying terms and operating cost reductions/elimination of duplicated overheads. 
Metcash management has indicated that, if successful, the two transactions would result in a uplift to FY06 EPS of as much as 20% (14% from FOA, 6% from capital reorganisation). This assumes 100% cash take-up. 
MTT is currently trading on a FY06 PE of 14.0x. Maintaining the current PE rating therefore implies a MTT stock price, post the two transactions, up to a range of $3.50-3.60. 
Note that MTT confirmed FOA had recently approached Metoz shareholders with a highly conditional offer for Metcash of $3.30 per share. 
The capital reorganisation should see MTT free float move from 40% to 100%, and the company may become suitable for ASX100 inclusion. 

Foodland: 

Based on metrics given by MTT, the transaction values FOA at $21.21 per share. 
This is based on a valuation of Foodland NZ of $14.03 per share plus the $7.18 cash components for Foodlands Australian assets. 
The $14.03 valuation of FNZ assumes an FY05E EBITA multiple of ~11.2x, that FNZ assumes ~2/3 of FOA's central overheads, and all of FOA's debt. 
FNZ would be an ASX listed company with around 50% supermarket share in New Zealand. Clearly, FNZ would represent a prime takeover target for Woolworths and Coles Myer. Thus, FOA shareholders retain any upside from an acquisition of FNZ. The ALH takeover battle, as well as WOW's recently announced underwritten DRP, suggest that both WOW and CML are pursuing acquisitive growth plans. 
By comparison, WOW and CML are trading on FY05 EBITA multiples of 12.6x and 11.9x (on our estimates). 
We expect FOA to argue that the MTT offer is inadequate. Further, FOA may consider making a counter offer for MTT (recall recent conditional $3.30 offer from FOA). 

Coles Myer & Woolworths: 

If successful, CML and WOW will now face a stronger, third player in the Australian supermarket channel. 
We expect both companies would welcome the chance to acquire Foodland NZ. The question would be, in a competitive auction process, how much of the value is transferred to Foodland shareholders. 

Action and Recommendation: 

Based on initial impressions, we will lift both our MTT and FOA short term recommendations to outperform.


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## markrmau (7 December 2004)

*Re: MTT - Rumor of Take Over*

I could be wrong, but isn't FOA much larger than MTT? Isn't there a significant risk that this deal won't go ahead? Was the rise on FOA an overreaction today?


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