Indofood Agri Rises After Bidding for London Sumatra

By Claire Leow and Arijit Ghosh

May 28 (Bloomberg) -- Stock in Indofood Agri Resources Ltd., the palm oil unit of the world's top instant noodle maker, rose after the company agreed to buy rival PT Perusahaan Perkebunan London Sumatra Indonesia for 9.1 trillion rupiah ($1 billion).

Shares in Singapore-listed Indofood Agri gained as much as 4.7 percent, to $1.33, and traded at S$1.30 at 12:26 p.m. local time. The addition of London Sumatra's plantations would boost the company's oil palm area by more than two-thirds.

The deal will ensure Indofood Agri's parent, PT Indofood Sukses Makmur, has greater palm oil supplies after the price rose 75 percent in the past year to a record. Demand for the oil, also used as an alternative fuel, is rising, prompting takeovers in Southeast Asia, including from Malaysia's Synergy Drive Sdn.

``Strategically, the acquisition makes sense,'' analyst Stevanus Juanda of PT J.P. Morgan Securities Indonesia said in a report today. ``The margins of the noodle business are currently lower than the edible-oil business.''

Palm oil futures on the Malaysia Derivatives Exchange, the benchmark contract, rose as much as 22 ringgit, or 0.9 percent, to an all-time high of 2,520 ringgit ($744) a ton today, and traded at 2,515 ringgit at 12:30 p.m. China's palm oil imports in the first four months of this year surged 27 percent.

Shares in Indofood Sukses Makmur, which owns 74 percent of Indofood Agri, rose as much as 8.3 percent to 1,830 rupiah on the Jakarta stock exchange, and were at 1,800 rupiah at 11:57 a.m. local time.

`Share Value'

``If palm oil prices were to maintain their current level, we estimate share value could reach 7,370 rupiah,'' Andreas Bokkenheuser, an analyst at PT UBS Securities Indonesia in Jakarta, said in a note. That's 7 percent higher than the offer.

Indofood Agri said May 26 it will buy 64.4 percent of London Sumatra from First Durango Singapore Pte. and other shareholders at 6,500 rupiah a share. It will also offer 6,900 rupiah for the other stock, a 7.8 percent premium to the last traded price of 6,400 rupiah. Stock in London Sumatra, also listed in Jakarta, remained suspended today.

``Lonsum's plantations are of high quality,'' J.P. Morgan's Juanda said, using the company's shortened name. ``Lonsum's seedlings operation is one of the best in the business,'' he said, referring to the company's research into developing high- yielding seeds.

Still, Indofood Sukses would acquire Lonsum's debt and would raise its gearing, a measure of debt compared to equity, which is the ``downside'' to the takeover, Juanda added.

Estate Acreage

The addition of London Sumatra's oil palm plantations would increase Indofood Agri's oil palm area by more than two-thirds to 138,081 hectares (341,198 acres). London Sumatra is Indonesia's second-largest publicly traded agriculture company, behind PT Astra Agro Lestari. Should Indofood Agri's offer succeed, the combined entity would remain second.

Synergy Drive, formed to buy three Malaysian oil palm growers including Sime Darby Bhd. will become the largest oil palm company in the world, capturing about 8 percent of global supply, the new entity said May 18. Synergy plans to list shares in Kuala Lumpur in October.

Wilmar International Ltd., Indonesia's biggest palm oil refiner, in December offered to buy stakes held by PPB Group Bhd., a Malaysian oil palm planter and sugar producer, in its edible oil and grain assets for $4.3 billion. PPB Group approved the sale in January. Wilmar, listed in Singapore, has said it expects to complete the transaction by the second quarter of this year.

Stock Sale

Indonesian billionaire Putera Sampoerna, who made his fortune selling tobacco, in January bought an oil palm company for an undisclosed sum. On May 22, the company, renamed PT Sampoerna Agro, announced plans to raise as much as 1.1 trillion rupiah in a June initial public offering to pay for doubling cultivated areas to about 150,000 hectares in five years.

About 90 percent of palm oil is produced in Indonesia and Malaysia. Palm oil refiners are trying to secure supplies as an expanding world economy supports demand for cooking oil.

There will be an estimated deficit of between 8 million and 10 million metric tons in the world's major 17 oils and fats in the year ending September 2008, from an estimated 1 million tons this year, Thomas Mielke, chief editor of OilWorld, a trade publication, said on March 14.

To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net ; Claire Leow in Jakarta at cleow@bloomberg.net