KordaMentha attacked over sugar mill sale

CHINESE-OWNED Tully Sugar has slammed the administrator of the Proserpine sugar mill, KordaMentha, before a crucial creditors vote tomorrow, for failing to allow proper consideration of its $128 million takeover bid.

By InvestSMART · 8 Dec 2011

By InvestSMART ·
8 Dec 2011

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Former Queensland treasurer Keith de Lacy, vice- chairman in Australia of Tully's parent, the China Oil and Food Corporation (COFCO), said the members of the Proserpine Co-operative Sugar Milling Association were being short-changed by KordaMentha.

The administrator had recommended a lower $120 million bid by Sucrogen, formerly the sugar arm of CSR that was bought by Singapore giant Wilmar International.

Mr de Lacy called for the report to creditors to be amended to include an evaluation of the two bids.

"If I was a grower I would be very angry," said Mr de Lacy, "because they have been dudded to tune of $8 million.

"It doesn't sound much but that's 25 per cent of free equity," after debts of about $90 million were paid off, he said.

"I have never in my life seen an administrator enter into a 'no-shop' clause with a bidder when another bid is floating around. They ought to be trying to get an auction going."

Mr de Lacy would not comment on the likely vote at tomorrow's meeting but noted Sucrogen was owed $15 million by Proserpine and would be voting for the deal as a creditor, as indicated in a report in yesterday's Whitsunday Coast Guardian.

The sale to Sucrogen requires approval of more than half Proserpine's creditors, by value and number.

If major lender Westpac did not vote, he said, "the Sucrogen vote becomes very important".

Korda's administrator, Robert Hutson, said he had signed a contract with Sucrogen on November 16 because it was the best offer at the time.

"You can only sell something once," he said. Tully had "not put its best foot forward, as indicated by the fact that it increased its bid by $6 million on the day we announced the sale to Sucrogen".

"We've got a contract in place. We're bound to perform under that contract. It's now in creditors' hands," Mr Hutson said.

Separately yesterday, Thai sugar company Mitr Phol released its bidder's statement outlining its $245 million recommended takeover bid for the owner of Maryborough sugar mill, ASX-listed MFS Sugar.

Mitr Phol said if its bid was successful it would "continue the employment of MSF's employees" and MSF would "continue to be managed wherever possible" by MSF's existing managers.

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Frequently Asked Questions about this Article…

What is the controversy around the Proserpine sugar mill sale and why should investors care?

The dispute centers on KordaMentha, the administrator of the Proserpine sugar mill, recommending a $120 million sale to Sucrogen while Tully Sugar (owned by COFCO) says its higher $128 million offer wasn't properly considered. Critics, including COFCO vice-chair Keith de Lacy, argue growers and creditors may have been short-changed and that competitive bidding was limited. Investors should care because the outcome affects creditor recoveries, local industry ownership, and precedent for how administrators handle competing takeover bids.

Who are the main companies and people involved in the Proserpine mill takeover story?

Key parties in the article are KordaMentha (administrator), its administrator Robert Hutson, Chinese-owned Tully Sugar (parent COFCO), Sucrogen (the recommended buyer, formerly CSR's sugar arm now linked to Wilmar International), the Proserpine Co-operative Sugar Milling Association (the mill owner), major lender Westpac, and critic Keith de Lacy. Each has a role in the sale process or the creditor vote.

Why did KordaMentha back Sucrogen’s $120 million bid instead of Tully’s $128 million offer?

According to KordaMentha’s administrator Robert Hutson, he signed a contract with Sucrogen on November 16 because it was the best offer available at that time and the administrator is bound to perform under that contract. Hutson also noted that Tully increased its bid on the day the Sucrogen sale was announced and that it hadn’t put its best foot forward earlier.

What is the role of creditors and how will the creditors’ vote decide the sale?

The sale to Sucrogen requires approval by more than half of Proserpine’s creditors both by number and by value. Creditors, including companies owed money by Proserpine and major lenders like Westpac, will vote on whether to accept the sale contract KordaMentha signed. If important creditors don’t vote or vote against the deal, the outcome could change.

What objections have been raised about a 'no‑shop' clause in the sale process?

Keith de Lacy criticized KordaMentha for entering a 'no-shop' clause with a bidder while another bid was still floating. The objection is that such a clause can prevent an open auction or further competitive offers, possibly reducing the final price that growers and creditors receive.

How much money did critics say growers might have lost in the Proserpine sale?

Keith de Lacy argued growers had been 'dudded' to the tune of $8 million compared with Tully’s $128 million bid. He framed that difference as about 25% of free equity after paying off roughly $90 million of debts, according to the article.

What did KordaMentha’s administrator Robert Hutson say about being bound to the Sucrogen contract?

Robert Hutson said he signed the contract with Sucrogen because it was the best offer at the time and that 'you can only sell something once.' He emphasized that with a contract in place he and the administrator are bound to perform under it and that the decision is now in the creditors’ hands.

Are there other sugar takeover developments investors should note from the article?

Yes. The article also reports that Thai sugar company Mitr Phol released a bidder’s statement for a recommended $245 million takeover of MFS Sugar, the owner of the Maryborough mill. Mitr Phol said it would continue employment of MFS staff and, where possible, keep existing managers in place if its bid succeeds.