Sime Darby, one of Malaysia’s largest conglomerates, has made a £1.1bn all-cash offer for London-listed New Britain Palm Oil, in a move that highlights a push by the world’s biggest palm oil producers into sustainable production of the commodity.
An acquisition of New Britain by Sime Darby, already one of the world’s biggest producers of palm oil, would be the biggest by the company since 2007.
Sime Darby is offering £7.15 per share for New Britain, which represents a premium of 85 per cent to the company’s closing price on the London Stock Exchange on Wednesday.
New Britain has about 80,000 hectares of oil palm plantations, more than 7,700 hectares of sugar cane and a further 9,300 hectares of grazing pasture in Papua New Guinea. It also owns 12 mills and two refineries – one in PNG, the other in Liverpool, UK.
The Malaysian group’s move for New Britain, one of the world’s largest producers of sustainable palm oil, will bolster its position in Europe, where demand for sustainable palm oil is growing faster than any other region.
Palm oil is a key ingredient in processed food and cosmetics made by companies such as Unilever and Procter & Gamble. It also accounts for about a third of all vegetable-oil consumption, according to Rabobank.
Heightened pressure from consumers buying products made using palm oil – including Gillette shaving cream, Oreo cookies and Colgate toothpaste – has prompted some consumer goods companies to switch to using sustainable palm oil.
Sustainable palm oil is produced according to environmentally friendly methods, including avoiding sourcing oil grown using “slash and burn” methods that contribute to deforestation.
Wilmar, the Singapore-listed agribusiness that also controls 45 per cent of the global production of and trade in palm oil, said last year it would ensure that both Wilmar’s own plantations and companies from which it sources would only provide products produced on a sustainable basis.
Mohd Bakke Salleh, Sime Darby chief executive, said that production at the Liverpool refinery could be combined with the company’s existing capacity in the Netherlands.
“We can see a lot of benefits coming out of this because we don’t have any refinery in the UK and New Britain doesn’t have any other refinery outside the UK, so it’s a nice fit,” he said.
The move comes amid a prolonged period of depressed crude palm oil (CPO) prices. Asked if the company was overpaying Mr Salleh said: “We are confident that the CPO price will move up – and we’ve seen that over the years. It may be seen that we are paying a high price today but there are strong fundamentals for oil palm.”
Crude palm oil futures on Bursa Malaysia for December delivery have risen 13 per cent since late August, partially reversing an eight-month decline. They were trading at Rm2,180 ($673) per metric tonne on Thursday, according to Bloomberg.
Sime Darby plans to pay for 20 per cent of the acquisition with existing cash reserves, with the rest from borrowings.
The offer for the whole of New Britain comes two months after Sime Darby started talks with Kulim, another Malaysian company, to acquire its 49 per cent stake in New Britain. Sime Darby went ahead with a full offer after the PNG government said a full takeover would “not be contrary to PNG’s national interest”.
The company is being advised by Citibank and Clifford Chance, the law firm.