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CJ in renewed push to sell animal feed maker for over $1.8 bn

By Dec 17, 2020 (Gmt+09:00)

Choi Eun-seok was appointed CEO of CJ Cheiljedang in December 2020
Choi Eun-seok was appointed CEO of CJ Cheiljedang in December 2020
CJ Cheiljedang Corp., South Korea’s top food company, has again put up for sale its animal feed assets, after talks to sell the fully owned unit to fish feed supplier Nutreco NV broke down last year.

CJ hired Credit Suisse as a sale manager for CJ Feed & Care, which the selling side valued at over 2 trillion won ($1.8 billion). It recently sent invitations to potential bidders, according to investment banking sources on Dec. 17.

Foreign animal feed producers, including companies based in China and Southeast Asia, as well as private equity firms, are expected to join the bid, the sources said.

The renewed attempt to sell CJ Feed & Care comes shortly after Cheiljedang appointed Choi Eun-seok, its chief business strategy officer, as CEO early this month. Choi had spearheaded the 2 trillion won acquisition of CJ Korea Express Co., a logistics company, in 2011 and the $1.84 billion purchase of the US frozen food company Schwan’s in 2019. This year, Choi led the 600 billion won share-swap deal with South Korea’s largest internet portal Naver Corp. for a strategic tie-up.

CJ Feed & Care was hived off from Cheiljedang last year. It produces and sells livestock and pet feed, while running farm businesses, including poultry and fish farming. It operates 29 feed mills in seven countries, including South Korea, China and Indonesia.

Its exclusive talks with the Netherlands-based Nutreco, the world’s No. 2 feed producer, had progressed to the advanced stages. But the two sides failed to reach a deal due to a price gap, combined with the spread of African swine fever and the industry slump last year.

Cheiljedang had sought to sell the animal feed assets in an effort to improve its financial conditions, following the acquisition of Schwan’s.

This year, the food company improved its bottom line by selling 1.3 trillion won worth of land in Seoul, alongside brisk sales of home meal replacements amid stay-at-home guidelines. The company now plans to use proceeds from the planned sale of CJ Feed to finance its global expansion and new businesses.

EARNINGS TURNAROUND

A turnaround in the livestock feed maker’s earnings this year is expected to speed up the renewed sale effort. Its operating profit margin came close to 10% on a quarterly basis, far above this year’s target of 3%, supported by price increases in its key overseas markets, including China, Indonesia and Vietnam. 

CJ Feed is tipped to earn more than 200 billion won in operating profit on sales of 2 trillion won this year. It derives more than 70% of its sales from overseas markets.

But the high asking price of over 2 trillion won and a limited pool of strategic buyers may drag down the sale attempt. Further, the company's high earnings volatility could make valuation tricky, the sources added. 

Write to Jun-Ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article.

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