Felda said to mull price cut for $680 million Indonesia deal

Felda may ask for a lower price to take into account issues discovered during due diligence on the Indonesian company, two of the people said, asking not to be identified as the information is private.

The two companies reached a preliminary agreement in June and said they plan to announce a final pact by mid-August, a deadline that has since been extended to Oct. 31. Felda said Aug. 14 it had “substantially completed” due diligence and was in the process of negotiating the terms of the definitive documentation.

Felda shares gained 4.1 percent at 10:28 a.m. Wednesday in Kuala Lumpur, the most in almost two months, after earlier rising as much as 4.9 percent. The benchmark FTSE Bursa Malaysia KLCI Index fell 1.4 percent.

Eagle High has dropped 41 percent since the initial deal was announced, while crude palm oil has dropped 12 percent on concerns slowing Chinese growth will hinder other emerging economies. The Indonesian company currently owns about 425,000 hectares (1.05 million acres) of land, of which 152,000 hectares have been planted, according to a June filing.

Felda said June 12 it planned to buy 37 percent of Eagle High from Indonesian conglomerate Rajawali Group for $680 million in cash and shares. That implies an enterprise value of about $17,400 per hectare of land, compared with the $25,900 that Sime Darby Bhd. paid for New Britain Palm Oil Ltd. in March, Felda Chief Executive Officer Mohd Emir Mavani Abdullah said in a July interview.

Employees Provident Fund, Malaysia’s biggest pension fund manager, is concerned about the valuation Felda is paying, the official Bernama news agency reported in June, citing the fund’s Chief Executive Officer Shahril Ridza Ridzuan.

Felda said in an e-mailed statement the deal is “still in process for the time being” and the final report on due diligence will be announced at the company’s upcoming shareholder meeting. Darjoto Setyawan, managing director of Rajawali Group, didn’t answer an e-mail and call to his mobile phone seeking comment. Eagle High Corporate Secretary Rudy Suhendra said by phone he wasn’t in a position to comment, as the deal is being done by the parent company.