FGV shares fall despite proposed acquisition in Indonesia

Felda Global Ventures Holdings Bhd's (FGV) shares was among the top losers in the morning session today and despite the announcement on the proposed acquisition of a 37 per cent stake in PT Eagle High Plantations (EHP)in Indonesia for US$680 million.

At 11.43 am, FGV shares fell 16 sen to RM1.70 with 15.17 million shares changing hands.

Kenanga Research said in a research note today that the acquisition was to form a strategic partnership with the Indonesian group and provide a platform into the country's market for palm oil and sugar products.

It said based on the planted areas, the valuation of the deal is at US$4,200 per hectare which is pricey, compared to the brownfield plantations estimate of US$3,000 to US$3,500 per hectare.

Meanwhile, it added, the sugar business to be acquired is still at the greenfield level, with little public information available.

According to Kenanga Research, management did not also provide a clear indication on whether the 37 per cent stake in EHP will be non-controlling or a controlling stake.

"Should the potential acquisition be considered a controlling stake, this could trigger a Mandatory Tender Offer (MTO) for the EHP, for which raising additional funds could prove challenging," said Kenanga.

The research house said in the near-term, it is neutral-to-negative on the potential deal, should it materialise, and expects to lower estimated financial year 2015 earnings after including loss of interest income.

Kenanga has maintained an "underperform" call on FGV with a lower target price of RM1.70.