China's state-owned enterprise China Oil and Food Corporation (Cofco) just launched a $1.1 billion bid to take China Agri-Industries Holdings private. Reports of the planned takeover immediately caused China Agri-Industries' shares to skyrocket, surging by as much as 28.7 percent on Monday.
The increase in the company's share prices was the highest in over two years. Cofco, which is tasked to ensure China's food security announced that it is willing to buy the shares it doesn't already own for HK$4.25 per share.
The bid amount represents a 34 percent premium over China Agri-Industries' last traded price on Monday. China Agri-Industries' stocks closed 27.4 percent higher at HK$4.04 on Thursday.
Cofco currently owns a 60.75 percent stake in the company. China Agri-Industries, which is listed in Hong Kong, is a wholly-owned offshore subsidiary of Cofco Group, China's largest supplier of agricultural and food products. Cofco currently owns major stakes in five companies listed in Hong Kong and another company listed in Shenzhen. The companies Cofco has invested in include those operating in industries such as manufacturing, agricultural products, food and beverage, logistics, property investment, and storage.
According to the China Agri-Industries' filing to the Hong Kong Stock Exchange on Thursday, Cofco's bid to take over the company is a unique opportunity to enhance its long-term business development. The consolidation of the company's operations with Cofco is expected to result in higher operational efficiency and add more flexibility overall.
Due to the ongoing trade dispute between China and the United States, along with other geopolitical factors, China Agri-Industries has been having a difficult time raising funds from the capital markets. The company has also seen its shares deteriorate over the past few months, with the firm stating that its ability to perform in the capital markets has come under restriction.
For the first half of the year, China Agri-Industries reported a 40.2 percent year-on-year drop in net profits to HK$448.8 million, despite having a revenue growth of 27 percent during the period.
The company attributed the decline of its profits to the ongoing Africa swine fever epidemic in China, which has resulted in lower demand for its soybean meal from the animal feed industry. China Agri-Industries also explained that it has seen a massive decline in its core oilseeds processing business for the period.
The privatization of the company and the integration with its parent state-owned enterprise should allow it to focus more on its operations and bottom line. China Agri-Industries is one of China's largest traders of oilseed, wheat, malt, and rice.
